Key Factors Behind the Rupee Depreciation

Strengthening US Dollar: The Dollar Index surged 1.24% to 109.84, reflecting increased investor confidence in the US economy. Robust job data, expectations of prolonged higher interest rates, and rising US Treasury yields have made the dollar more attractive.

Escalating Trade War Fears: US President Donald Trump’s tariffs on Canada, Mexico, and China have heightened global trade tensions. Canada and Mexico, which export over $840 billion worth of goods to the US, have announced retaliatory measures. China faces a potential 10% tariff, which has weakened the Yuan, indirectly impacting the Indian Rupee.

Foreign Institutional Investor (FII) Outflows: FIIs have been aggressively selling Indian assets since October 2024, withdrawing $11 billion in Q3 FY25, adding further pressure on the currency.

Widening Trade Deficit: India’s trade deficit has reached $188 billion, up 18% from FY24, reflecting the high import dependency, especially on crude oil.

RBI’s Intervention and Monetary Policy Outlook: The Reserve Bank of India (RBI) has been managing the currency volatility through forex interventions, selling $3.3 billion in reserves over the last seven weeks. However, with inflation concerns mounting, all eyes are on the upcoming RBI monetary policy review later this week