- The Indian Rupee remains under selling pressure in Tuesday’s early European session.
- Escalating global trade tensions weigh on the INR.
- Investors brace for the RBI interest rate decision on Wednesday.
The Indian Rupee (INR) declines on Tuesday, erasing all its gains of 2025. Fears over global trade tensions escalated after China implemented retaliatory tariffs on US goods. The heightened uncertainty has triggered risk-off sentiment, leading to outflows from emerging markets, including India. This, in turn, exerts some selling pressure on the Indian currency. Additionally, the Reserve Bank of India (RBI) could tolerate a sharper depreciation of the INR if China lets the Chinese Yuan weaken to cushion the impact of US tariffs, multiple sources aware of the central bank's thinking said.
On the other hand, a broadly weaker US Dollar (USD) due to the concerns over the potential recession in the United States might help limit the local currency’s losses. The RBI interest rate decision will be in the spotlight later on Friday. The Indian central bank is expected to cut key interest rates by up to 25 basis points (bps) on Wednesday, with lower inflation supporting an accommodative monetary policy stance. The attention will shift to the US Consumer Price Index (CPI) inflation report for March, which is due later on Thursday.
Indian Rupee remains fragile after Trump's latest tariffs threat
- Pranjul Bhandari, HSBC’s Chief India Economist, expects consecutive interest rate cuts from the RBI at the central bank’s April, June and August meetings.
- Despite the global economic uncertainty and tariff policy, Indian government officials remain optimistic about the country’s growth trajectory. They project a growth rate of 6.3% to 6.8% for the fiscal year 2025-26.
- "Bond yields slipped further after the RBI surprised by announcing another OMO for April, signaling a strong preference for surplus liquidity to aid transmission. We look for a 25bp cut in the repo rate to 6% and a change in stance to accommodative at the April meeting, tapping into the wide real rate cushion," said Radhika Rao, executive director and senior economist at DBS Bank.
- The markets have priced in a nearly 65% chance of a Fed cut in May, and futures now point to about 100 basis points (bps) worth of rate reductions by December, according to the CME FedWatch tool.
- Chicago Fed President Austan Goolsbee said late Monday that significant tariff retaliation could boost inflation, adding that a global trade war eruption may lead to a consumer behavior shift.
- Fed Governor Adriana Kugler noted that some of the recent rise in goods and market-services inflation may be "anticipatory" of the effect of the Trump administration's tariffs. Kugler further stated that the Fed's focus should be on keeping inflation in check, per Reuters.
USD/INR bulls seek to extend upside correction above the 100-day EMA
The Indian Rupee remains weak on the day. According to the daily chart, the USD/INR pair is set to resume its uptrend, with the price crossing above the key 100-day Exponential Moving Average (EMA). The pair could resume its upside journey if the price decisively closes above this level.
The first upside barrier for USD/INR emerges at 85.88, the 100-day EMA. Any follow-through buying above the mentioned level could see a rally to 86.48, the low of February 21, en route to 87.00, the round mark.
The initial support level for the pair is seen at 85.20, the low of April 3. Sustained bearish pressure below this level could keep pulling USD/INR down to the next target at 85.00 psychological level, followed by 84.84, the low of December 19.
Indian economy FAQs
The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.
India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.
Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.
India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.
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