Economists anticipate that the Reserve Bank of India (RBI) will relax its tight grip on the rupee in 2025. Currently, the rupee is overvalued in real effective exchange rate (REER) terms, making Indian exports more expensive. The RBI's frequent interventions to maintain low volatility have contributed to this overvaluation. A shift towards a more flexible approach could lead to a weaker and more volatile rupee. The rupee's trade-weighted exchange rate is at its highest since 2004, raising concerns about export competitiveness. Factors such as U.S. Federal Reserve policies, trade uncertainties, and India's economic growth outlook add to the challenges. The appointment of Sanjay Malhotra as the new RBI governor may signal a move towards a more flexible currency management strategy.
