USD/INR: Rupee Remains Stable Amid Global Trade Tensions and Inflation Data for Week Ending March 13, 2025

The Indian rupee closed flat on Thursday, as comforting U.S. inflation data helped offset concerns over escalating global trade tensions that have dampened risk appetite.

The rupee rose to 87 ending with 0.24% gains on Thursday, March 13, 2025.. The 1-month non-deliverable forward (NDF) indicated that the rupee would open at around 87.20-87.22, little changed from its previous close of 87.2075.

Global Factors Influencing the Rupee

The dollar index remained steady at 103.78, supported by an uptick in U.S. bond yields. This stability came despite softer-than-expected U.S. inflation data for February, which showed consumer prices rising less than anticipated.

The data initially raised hopes of Federal Reserve rate cuts, but traders have since scaled back expectations, now pricing in about 70 basis points of cuts in 2025, down from 76 basis points earlier.

Meanwhile, global trade tensions escalated after U.S. President Donald Trump announced a hike in tariffs on all steel and aluminium imports to 25%, vowing to reclaim wealth “stolen” by other countries.

In retaliation, Canada imposed stiff taxes on a range of U.S. products, including textiles, water heaters, beef, and bourbon. The European Union (EU) also announced plans to raise tariffs on American goods such as beef, poultry, bourbon, motorcycles, peanut butter, and jeans.

Domestic Inflation and Economic Data

On the domestic front, India’s retail inflation fell below 4% in February for the first time in six months, reaching a seven-month low of 3.61%. The decline was driven by easing prices of vegetables, eggs, and other protein-rich items.

This drop in inflation has created room for the Reserve Bank of India (RBI) to consider further rate cuts in upcoming policy meetings.

Additionally, the Index of Industrial Production (IIP) showed a rebound in manufacturing activity, with growth accelerating to 5% in January 2025, according to data released by the National Statistics Office (NSO).

Equity Market and Foreign Investor Activity

The domestic equity market witnessed a decline on Wednesday, with the 30-share BSE Sensex ending 200.85 points (0.27%) lower at 73,828.91.

The broader Nifty also settled 73.30 points (0.33%) down at 22,397.20 points. Foreign institutional investors (FIIs) offloaded equities worth Rs 1,627.61 crore on a net basis, according to exchange data.

Oil Prices and Global Market Impact

Brent crude, the global oil benchmark, traded 0.37% lower at $70.69 per barrel in futures trade. The decline in oil prices provided some relief to India, a major oil importer, but global trade tensions and market volatility continue to weigh on investor sentiment.

Conclusion

While the rupee remains resilient amid mixed global cues, the escalating trade war and fluctuating inflation data are key factors to watch.

Domestically, the drop in retail inflation and improved industrial production offer a silver lining, potentially paving the way for further monetary easing by the RBI.

However, the equity market’s performance and foreign investor activity will remain critical indicators of India’s economic trajectory in the coming months.

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