Rupee Performance & Market Trends
- The rupee gained for nine consecutive sessions before correcting on Tuesday.
- March 2025: One of the best-performing Asian currencies, up 2%.
- FY25 (Ending March 31, 2025): Down 3% against the US dollar.
- Currency fluctuations driven by the US Dollar Index, which rose 5% (Nov 2024 – Jan 2025) in anticipation of Trump’s policies but has since corrected.
Foreign Portfolio Investments (FPI) Trends
- Heavy FPI outflows in early 2025:
- January: $8.7 billion in stocks & bonds sold.
- February: $6 billion more in outflows.
- March shift: FPIs turned net buyers in equities, boosting stock markets, while continuing to sell in debt markets.
US Trade Policy Impact
- Trump’s reciprocal tariffs (effective April 2) remain unclear in terms of implementation.
- Some sectors & countries may be exempted.
- US trade officials in India negotiating terms:
- India may cut tariffs on various goods, leading to short-term import rise.
- In return, India could secure export market access in the US.
- Potential long-term benefit if India capitalizes on US tariffs on Chinese goods.
- A trade deal with the US could improve India’s negotiating power with the UK & EU.
Currency & Economic Outlook
- India’s current account deficit (CAD) for FY25 is projected at a modest 1% of GDP.
- Crude oil prices remain stable, reducing risks of a wider CAD.
- Biggest currency risk stems from capital flows rather than trade imbalances.
- US Federal Reserve projected two rate cuts in 2025, but trade-related inflation concerns could change expectations and affect capital movement.
RBI’s Strategy & Policy Recommendations
- The rupee remains overvalued (by over 2% in February), and nominal appreciation in March could worsen the situation.
- A controlled rupee depreciation could help India’s export sectors remain competitive.
- Medium-term currency stability depends on trade deal clarity and resolution of global trade uncertainties.
Short-term rupee movements will depend on trade negotiations and FPI behavior. India’s trade strategy with the US could shape broader global trade relations. A balanced approach by the RBI—allowing a modest depreciation—could support Indian exports.
