2025 will not be a good year for rupee, should brace for underperformance, says RBL Bank’s Anshul Chandak

Anshul Chandak, head of treasury at RBL Bank

For the rupee, 2025 would not be a standout year due to global and domestic uncertainties, Anshul Chandak, head of treasury at RBL Bank, told Moneycontrol in an interview.

"This year probably will not be a year for rupee, we should brace ourselves for underperformance," Chandak said.

The local currency has depreciated sharply due to various factors, including sluggish economic growth, a widening trade deficit, rising crude oil prices, a surge in the dollar index after the US Federal Reserve hinted at fewer rate cuts in 2025, and the threat of global trade disruptions following sanctions imposed by US President Donald Trump. The Reserve Bank of India (RBI) has had to intervene heavily in the market to defend the local currency.

Chandak also said that the revised stance from the regulator is to let rupee loose and leave it to market forces. "We were outperforming for the longest time and we may actually underperform versus our peers. I am not honestly ruling out (the rupee hitting) 89 (to the dollar) in the next four quarters," Chandak said.

On the rate action front, the treasury head said that the central bank is likely to cut the policy repo rate by 25 basis points (bps) at the upcoming monetary policy committee meeting.

Edited excerpts:

Is it viable to infuse liquidity with a neutral stance?

When you have Rs 3-lakh-crore deficit liquidity, it is the right time to intervene. The liquidity deficit was due to multiple factors such as dollar sales by the RBI and less government spending, among others. If they (the RBI) feel at some point that they bring more durable liquidity, they may announce accordingly. It was important for them to act on that.

Historically, whenever such liquidity levels have touched levels of this deficit, the RBI has announced OMO (open market operations) purchase.

Depending on how the liquidity situation moves, more actions may be required. The RBI may announce more liquidity measures because this won't be sufficient.

These steps may not be announced at the next monetary policy committee meeting, maybe in the next policy. Because usually, March is the period of liquidity deficit. For liquidity, there is no need for policy. It depends on how dynamic it is.

Do you think the RBI is thinking of allowing the rupee to depreciate further?

The revised stance from the regulator is let it loose. We were outperforming for the longest time and we may now actually underperform versus our peers. I am honestly not ruling out the rupee falling to 89 to the dollar in next four quarters.

In terms of the US or somewhere else, whenever a new regime comes in, the first two to four months remain volatile, before stability is back.

Even when there was a large move, we probably saw very little intervention coming in from the RBI. They are also cognisant of the fact that they cannot continue to use the foreign exchange reserves the way they have used in the last three months.

This year probably will not be a year for the rupee, we should embrace ourselves for underperformance.

What are your expectations from the upcoming monetary policy?

Our internal expectation is probably that the RBI will start with a shallow rate cut of 25 basis points (bps), and then depending on whether inflation numbers are expected to tame down, which has already started to happen. Growth is becoming a point of worry and I do not think they would let it slip, then suddenly get into damage control. A 50 bps rate cut looks difficult at one go, so 25 bps is a good start to have. The whole rate cut cycle can be 50-75 bps.

Do you think that foreign portfolio investors have again started taking interest in our bonds?

There are some flows of inclusion. At some point, they will start finding it attractive. It's just that the only animal in this is the US 10-year bond yield. That is the biggest factor. That's why we saw the outflow in the last two months, while in December it did come down. Rather, we saw inflows in December. But January again was slightly bad. The US 10-year (bond yield) is the only risk in this whole thing. Otherwise, we should start seeing positive flows into debt consistently.

Do you think Indian securities will be attractive compared to US Treasuries?

Yes, because Russia is now no more there, so, they have to divert that. Even China also they are resistant. India was taken as an alternative to those two. Even if US 10-year bond yield goes to 4.70-4.80 percent, the flows may slow down but they will keep on coming. It is just an alternative destination for those investors as of now.

What could be the levels for G-secs and the rupee by the end of this fiscal year?

The G-sec yield could range between 6.60 percent and 6.75 percent by the end of this financial year, and for Indian rupee, it may trade in range of 87-88 against the US dollar.