Topic 6: RUPEE: GLOBAL RAIDS
In May 2025, the Indian rupee followed a broadly stable but mildly weakening trajectory against the US dollar, trading between ₹84.22 and ₹85.99 per dollar. The currency began the month on a strong note, reaching its best level of the year at ₹84.22 on May 5, but gradually depreciated, ending near ₹85.57 on May 31. This downward drift was shaped by a mix of global and domestic influences, including US monetary policy, foreign investment flows, commodity prices, and domestic policy expectations. Globally, a key driver was the sustained strength of the US dollar. Investor expectations that US interest rates would remain elevated—alongside rising Treasury yields and demand for safe-haven assets amid geopolitical tensions—made dollar assets more attractive. This put consistent pressure on emerging market currencies, including the rupee. Meanwhile, global crude oil prices increased India’s import bill, widened the trade deficit, and added to dollar demand, further weakening the rupee. Foreign portfolio investment (FPI) activity also impacted the rupee. Although Indian markets saw strong FPI inflows, selective outflows from FAR bonds and profit-booking capped any gains. On the domestic front, expectations of monetary easing by the Reserve Bank of India, which later cut rates by 25 basis points, led to concerns over reduced yield attractiveness, prompting capital outflows. Additional risk aversion due to tariff uncertainties and border tensions made the rupee Asia’s worst-performing currency in May, with a nearly 1% decline. Despite these pressures, the Reserve Bank of India maintained currency stability through periodic intervention, preventing sharp volatility without fixing any specific rate level. This balanced approach allowed the rupee to weaken steadily in line with global trends. Moving forward, the rupee’s path will be shaped by global interest rates, oil prices, inflation data, and the RBI’s monetary policy direction.
