The Indian Rupee (INR) saw a significant drop against the US Dollar (USD) on Friday, hitting around 86.25. This weakening of the Rupee is due to a mix of factors both from within India and around the world, creating a challenging situation for the currency.
Several "headwinds" are making the Indian Rupee underperform:
Soft Inflation Data: India's Consumer Price Index (CPI) for May showed a yearly rise of just 2.82%. This is the lowest inflation rate in over six years and lower than what economists expected. While lower inflation sounds good, it's now below the Reserve Bank of India's (RBI) target of 3.7%. This cooling inflation might lead to expectations of further interest rate cuts by the RBI, which can weaken the Rupee.
Surging Oil Prices: The price of oil has gone up sharply. This is bad news for India because it imports a large amount of oil. When oil prices rise, India has to pay more USD to buy oil, which increases the demand for USD and makes the Rupee weaker.
Middle East Tensions: Growing conflicts in the Middle East have made investors nervous. In times of global uncertainty, investors tend to move their money to "safe-haven" assets like the US Dollar, increasing its demand and value. Reports of Israel striking military and nuclear bases in Iran, and statements of prolonged conflict, are adding to this market fear.
Foreign Investor Outflows: Foreign Institutional Investors (FIIs) have been selling Indian stocks. They've pulled out about Rs. 3,548.87 crores from Indian equities as of June 12. When foreign investors sell Indian assets, they convert their Rupees back into foreign currency (usually USD), which reduces the demand for INR and causes it to fall.
Strong US Dollar: The US Dollar itself has made a strong comeback. The US Dollar Index (DXY), which measures the Dollar's strength against other major currencies, has risen to near 98.20. This recovery is largely because of the increased demand for safe-haven assets due to global tensions.
Looking ahead, market participants will be closely watching the US Federal Reserve's (Fed) upcoming policy announcement. While the Fed is expected to keep interest rates steady for now, their future guidance on monetary policy will be very important. There are expectations that the Fed might start cutting interest rates from September, which could affect the Dollar's strength.
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The Indian Rupee is currently facing a challenging period, caught between domestic economic signals and significant global events. The combination of cooling inflation at home, rising oil prices, escalating Middle East tensions, and foreign investment outflows are all contributing to its weakness against the strong US Dollar. The coming days will be crucial as markets react to geopolitical developments and central bank decisions.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.
Published on: Jun 13, 2025, 2:48 PM IST
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