Is the worst over for Indian rupee after hitting a two-month high?, ET BFSI
The Indian rupee has staged a robust restoration after months of weak point, rebounding by 2% from its February lows following an almost 4% decline between November 2024 and February 2025.
Rupee hits document low: Inside a span of a month, the rupee has depreciated from ₹84 to ₹86, marking one in every of its steepest falls ever. What prompted this sharp decline within the rupee? What are the key elements behind it? Are different currencies additionally experiencing the same fall? ETBFSI explains why.
The surge previous the 86 mark towards the US greenback on Friday, for the primary time since January, was pushed by a mixture of international institutional investor (FII) inflows, enhancing commerce information, and an increase in international trade reserves supported by the Reserve Bank of India’s (RBI) USD/INR swap interventions.
Throughout the seven-month interval beginning June 2024, the RBI’s gross greenback gross sales amounted to over $53 billion, whereas gross purchases stood at over $16.5 billion. Nevertheless, regardless of the intervention, the rupee continued to weaken.
FII inflows surged in latest days, offering sturdy help to the rupee as world funds turned web patrons of Rs 3,239.14 crore from Indian equities on Thursday.
Regardless of pulling out Rs 1.43 trillion from home shares to date this yr, latest capital market strengthening has given the rupee a lift. The Federal Reserve’s resolution to carry charges regular and its forecast of decrease rates of interest forward weakened the US greenback, offering an extra tailwind for the rupee.
The RBI’s intervention by way of ahead promote positions and energetic administration of international trade reserves have additionally performed a vital position in stabilising the rupee. Though the central financial institution’s massive ahead e book stays a threat, analysts imagine the RBI has ample reserves to forestall extreme depreciation.
The rupee has emerged because the top-performing Asian forex this month, registering its greatest weekly efficiency since January 2023. It appreciated by 39 paise on Friday, closing at 85.98 towards the US greenback in comparison with Thursday’s shut of 86.37. In March to date, the rupee has gained 1.78%, reflecting rising investor confidence amid a declining greenback index.
The outlook and causes
With capital flows enhancing and greenback weak point persisting, the rupee is predicted to commerce in a slim vary of 85.65 to 86.30 within the close to time period. Spot USD/INR has speedy help at 85.70 and resistance at 86.45.
Analysts undertaking the rupee to commerce between 86.5 and 88 over the subsequent three to 6 months, with depreciation more likely to be restricted this yr.
The rupee’s real effective exchange rate (REER) has returned to across the 102 mark, suggesting that the forex is now buying and selling near its historic common. This means that the rupee is not considerably overvalued, additional decreasing the chance of sharp depreciation.
A projected decline in Brent crude costs may present further help. Citi Financial institution estimates crude costs might fall to $60 per barrel by the tip of 2025, which, if realised, would enhance India’s commerce stability and ease stress on the rupee.
Whereas the outlook stays optimistic, some uncertainties persist. Reciprocal tariffs set to take impact in April may quickly disrupt commerce, although analysts count on the impression to be minimal in the long run. The RBI’s massive ahead e book additionally stays a possible supply of volatility, and the way the central financial institution manages this place shall be key to sustaining rupee stability.
With a number of supportive elements in play, the consensus is that the rupee’s worst section is behind it. Analysts not count on the rupee to weaken past 89 per greenback this yr, regardless of earlier considerations that it may breach 90. The rupee is now anticipated to stay range-bound with a extra steady outlook for the rest of the yr.
