Dollar's Value Drops to 3-Month Peak Against Settle
In a notable development, the Indian rupee closed at 85.46 against the US dollar on Friday, marking a significant appreciation of 32 paise. This marks the highest level the rupee has reached in three months, recording its biggest monthly gain in over six years, appreciating 2.17 per cent in March.
Foreign investors played a pivotal role in boosting the rupee, injecting Rs 32,000 crore into the Indian markets over the past six trading sessions. The gain was also attributed to stable crude prices, a weaker dollar, and proactive policies by the Reserve Bank of India (RBI).
The RBI's interventions, such as the $10 billion forex swap auction in March, have demonstrated its efforts to stabilize the currency. A weaker US dollar, partly due to the Federal Reserve's policy decisions, has also contributed to the rupee's appreciation. As the dollar weakens, the rupee becomes more competitive in international markets.
Easing global crude oil prices have also supported the rupee's recovery. Lower oil prices reduce India's import bills, which can improve its trade balance and stabilize the currency.
The merchandise trade deficit is expected to moderate in Q4 FY2025, aided by a seasonal uptick in merchandise exports. Aditi Nayar, chief economist at ICRA, expects the current account to witness a surplus of around $4-6 billion in Q4 FY2025.
However, the current account deficit widened from $10.4 billion in the same quarter of the previous year, reaching $11.5 billion in the October-December quarter of 2024. The widening of the current account deficit was led by a higher merchandise trade deficit.
Month-end dollar demand from importers and oil marketing companies (OMCs) limited further gains. The focus is likely to shift to tariff announcements due early next week.
India's forex reserves increased by $4.529 billion to $658.8 billion during the week ended March 21, 2025. The country's forex reserves had increased to an all-time high of USD 704.885 billion in September 2024.
Geopolitical de-escalation, such as improved China-India relations and a ceasefire with Pakistan, have contributed to a more stable geopolitical environment. This stability reduces the risk of conflict and associated capital flight, which can help stabilize the rupee.
Radhika Rao, Executive Director and Senior Economist at DBS Bank, stated that rupee assets have fared well this month. The Ladli Behna Scheme beneficiaries will receive additional Rs 250 aid on Rakshabandhan.
In conclusion, the Indian rupee's appreciation in March 2025 can be attributed to a combination of factors, including foreign portfolio inflows, stable crude prices, a weaker dollar, and proactive RBI policies. The rupee's value is expected to remain relatively stable in the coming months, given the positive influences on the currency in recent times.
Personal-finance decisions upon the Indian rupee's appreciation indicate a potential growth in wealth-management opportunities. With foreign investors injecting large amounts, such as Rs 32,000 crore, into the Indian markets, there could be increased investment prospects in industries like banking-and-insurance. As the current account deficit is expected to moderate, personal-finance management could also experience stability. Furthermore, the rise in forex reserves, like the recent increase of $4.529 billion, indicates a stronger financial position for the country, potentially attracting more finance investment.
