Topic 5: RUPEE: NAVIGATING THE NOISE

The Indian rupee ended April 2025 on a stronger note, appreciating modestly against the U.S. dollar despite a month marked by volatility and geopolitical tensions. Beginning the month around ₹85.60 per dollar, the rupee closed at approximately ₹84.55—the strongest level seen so far this year. The rally was underpinned by several supportive global and domestic factors. A sharp decline in the U.S. Dollar Index (DXY) made emerging market currencies like the rupee more attractive, while falling global crude oil prices eased India’s import bill and improved trade dynamics. Inflows from foreign portfolio investors (FPIs), especially in equities, surged in the second half of the month, adding strength to the rupee. Exporter hedging strategies and easing domestic inflation further contributed to currency stability. On the domestic front, the Reserve Bank of India’s 25 basis point repo rate cut to 6%, its second consecutive cut, signalled a pro-growth stance. While rate cuts generally dampen foreign investor appeal, the rupee held firm thanks to strong inflows, lower oil prices, and improving macroeconomic sentiment. However, geopolitical tensions clouded the rupee’s trajectory. A militant attack in Kashmir on April 22 escalated India-Pakistan tensions, causing sharp rupee depreciation to ₹86.21 per dollar and pushing volatility to a two-year high. The RBI stepped in to curb speculative moves, but risk aversion lingered across markets. Challenges remained, including a widening trade and fiscal deficit, sluggish GDP growth, and structural economic constraints. Yet, the rupee’s ability to appreciate despite these headwinds highlights the influence of favourable global trends and robust market flows. To summarise, April 2025 showcased the rupee’s resilience amid global tailwinds and regional turbulence, closing stronger even as volatility tested investor confidence.



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