Context:
The Indian rupee continued its decline on Tuesday, falling by 0.5% to close at ₹86.26 per US dollar, compared to Monday’s ₹85.86. The fall was largely attributed to:
- Weakness in the Chinese Yuan
- Strong demand for dollars by importers and oil companies
- Renewed foreign portfolio investor (FPI) outflows from Indian equities
On Monday, the rupee had already declined by 0.7%, reversing its year-to-date gains.
Yuan at 19-Month Low Amid US-China Trade Tensions
The Chinese Yuan dropped to 7.35 per USD, its lowest since September 2023, after signals emerged that the People’s Bank of China may allow further depreciation to offset the economic impact of U.S. tariffs.
- U.S. President Donald Trump’s threat of a 50% tariff on Chinese imports has reignited trade tensions.
- Investors are seeking safe-haven assets, further strengthening the US dollar.
Strength in US Dollar and Treasury Yields
The dollar index rose to 103.27 on Tuesday from 102.75 the previous day, supported by:
- Rising U.S. Treasury yields: 2-year and 10-year yields increased by 22–24 basis points
- Safe-haven demand amid global uncertainty
Oil Price Crash Fuels Importer Dollar Demand
Global oil prices have fallen to a four-year low, prompting Indian oil companies to ramp up dollar purchases to lock in cheaper prices, adding pressure on the rupee.
RBI Policy Decision Looms
- The rupee has depreciated by 0.8% so far in calendar year 2025.
- It is expected to stabilize around ₹85.50/$, though risks remain tilted to the downside.
Markets are closely watching the RBI Monetary Policy Committee (MPC) meeting. The central bank is expected to cut the repo rate by 25 bps to 6.00%, which could weigh further on the rupee.
Key Indicators
| Metric | Value/Change |
|---|---|
| Rupee Close (Tuesday) | ₹86.26/$ |
| Dollar Index | 103.27 (vs 102.75 Monday) |
| Yuan Level | 7.35/$ |
| Oil Prices | Four-year low |
| Rupee YTD Depreciation | 0.8% |
| Expected RBI Repo Cut | 25 bps (to 6.00%) |
