Is the Sliding Rupee a Sign of Weakness Amid Global Uncertainty?
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Synopsis
Discover how the rupee's recent depreciation against the US dollar is driven by global uncertainties and trade negotiations rather than economic weakness. SBI Research unpacks the implications of this currency fluctuation and what it means for India's market.
Key Takeaways
- The rupee's decline past the 90 mark against the USD is not a sign of weakness.
- Global uncertainties and tariff impacts are major influencing factors.
- The Reserve Bank of India is avoiding excessive market interventions.
- Concerns regarding the trade deficit are overstated.
- About $45 billion of Indian exports are impacted by US tariffs.
New Delhi, Dec 4 (NationPress) Although the rupee has crossed the psychological threshold of 90 against the US dollar, this decline is not indicative of weakness, according to a recent report from SBI Research released on Thursday.
The findings compiled by SBI Research indicate that the recent depreciation is primarily influenced by global uncertainties, delays in the US-India trade deal, and outflows from foreign portfolios, rather than any decline in India’s economic fundamentals.
The report highlights three main causes for the rupee's recent downturn: uncertainty surrounding the India-US trade deal, foreign portfolio outflows from equities following two robust years of inflows, and the Reserve Bank of India’s commitment to refraining from excessive intervention in the currency market.
Simultaneously, the offshore non-deliverable forward (NDF) market has gained traction, and the US dollar index is showing signs of strengthening.
The report suggests that fears regarding a widening trade deficit affecting the rupee's value are not entirely accurate.
Between April and October, India's goods and services deficit was recorded at $78 billion, which is only marginally higher than $70 billion during the same period last year.
Experts believe the negative sentiment surrounding trade figures has been exaggerated in the markets.
Since April 2, when the US implemented significant tariff increases on multiple nations, the Indian rupee has depreciated by approximately 5.5 percent against the dollar, more than most major global currencies.
The 50 percent tariff imposed on India is much steeper than those applied to China, Vietnam, Indonesia, and Japan.
This, the report claims, is a crucial factor contributing to the current pressure on the rupee, despite India's efforts to diversify its exports and pursue new free-trade agreements.
About $45 billion worth of Indian exports, primarily labor-intensive products, are anticipated to be directly affected by the US tariffs, according to the report.
Point of View
It is crucial to approach the fluctuating rupee situation with a balanced perspective. While the depreciation might appear alarming, expert analyses indicate that the root causes lie in external factors rather than domestic economic weakness. It's essential to inform the public accurately, fostering a better understanding of these financial dynamics.
NationPress
04/12/2025
Frequently Asked Questions
Why has the rupee depreciated against the dollar?
The rupee's depreciation is largely due to global uncertainties, delays in the US-India trade deal, and foreign portfolio outflows.
What impact do US tariffs have on Indian exports?
US tariffs are expected to directly affect around $45 billion worth of Indian exports, particularly labor-intensive products.
Is the depreciation of the rupee a sign of economic weakness?
No, the recent depreciation is not a sign of weakness but is influenced by external factors rather than India's economic fundamentals.
How does the Reserve Bank of India's policy affect the rupee?
The Reserve Bank of India's stance on avoiding excessive interventions in the currency market contributes to the current market dynamics.
What is the current state of India's trade deficit?
India's goods and services deficit between April and October stood at $78 billion, slightly higher than the previous year's $70 billion.
