Current status of INR against the USD
The rupee has continued its downward trajectory against the US dollar, with the currency slipping on multiple sessions as global dollar strength looms. In early trading, the INR traded around the 90.40–90.50 per dollar mark amid persistent foreign outflows and a cautious global mood. While local economic indicators provide some support, the overarching theme remains a stronger dollar and higher U.S. yields that attract capital away from emerging markets like India.
Five key reasons the INR could stay under pressure
1) A stronger dollar and higher US yields
The dominant driver behind the rupee’s weakness is the persistent strength of the US dollar. When the greenback gains, Indian imports become more expensive and foreign investors reassess risk premia. A higher U.S. Federal Reserve policy rate or expectations of continued tightening tend to push yields higher, attracting investment flows to US assets. This dynamic often leads to pressure on EM currencies, including the INR, even when domestic fundamentals are supportive.
2) Persistent outflows from foreign portfolio investors
Foreign portfolio investors (FPIs) have been net sellers in several sessions, withdrawing funds from Indian equities and bonds. Such outflows can quickly dent the rupee’s stability, especially in the absence of offsetting inflows from other sectors. The pace and nature of these outflows often reflect global risk appetite, capital market reactions to foreign policy shifts, and relative yields across asset classes.
3) Oil price volatility and the import bill
India’s energy import bill is sensitive to global oil prices. A rise in crude oil prices widens the trade deficit and exerts additional pressure on the rupee. Even if domestic demand remains steady, a higher import bill can erode current account quality and prompt the central bank to pursue measures that may not immediately anchor the INR, complicating the currency’s path in the near term.
4) RBI policy expectations and macro dynamics
Market expectations about the Reserve Bank of India’s policy stance influence the INR. If investors anticipate a slower pace of rate hikes or uneven policy transmission, the rupee may struggle to stabilize. Conversely, a clear, credible plan to anchor inflation and ensure strong macro-prudential management can support the INR over time. The balance between inflation control, growth and currency stability remains delicate, shaping near-term moves.
5) Domestic growth indicators and risk sentiment
Indian growth data, fiscal balance, and domestic political signals can impact risk sentiment and currency trajectories. Positive economic news can offer relief, while surprises on inflation or external accounts can renew selling pressure. In a global environment where risk-on or risk-off trades swing quickly, the INR often reacts to the broader mood of investors toward emerging markets.
What could help the INR regain footing?
Several factors could provide relief for the rupee: a cooling in US yields or a softer dollar trajectory; steadier capital inflows attracted by Indian growth prospects and policy credibility; stabilization in global oil prices reducing the import bill; and clear communication from the RBI about policy direction and currency management. While no single indicator guarantees a reversal, a combination of improving macro indicators and favorable global conditions could help the INR reclaim some of its lost ground.
A practical outlook for investors
Investors should consider risk management strategies that reflect currency volatility, such as hedging or diversification across asset classes. Keeping an eye on the external components of India’s balance of payments—especially the energy import bill and external debt maturity—can provide context for INR moves. In the medium term, the rupee’s path will largely hinge on global dollar dynamics and how India’s domestic policy framework adapts to external shocks.
