Indian Rupee Trails Asian Currencies
Unique Economic Hurdles Keep INR Under Pressure in June
In June 2025, the Indian Rupee (INR) has been trailing behind other major Asian currencies, even though the US dollar has been weakening across global markets. This underperformance is not due to global conditions but stems from India’s internal economic structure and external trade challenges.
Global Dollar Weakness Offers Limited Relief
The US dollar has shown a broad decline recently, losing ground to several major currencies. For example, the Japanese yen recently climbed to a three-week high, and the Chinese yuan has appreciated more than 1% since the start of June. Generally, a falling dollar creates a favorable climate for developing economies, as their currencies become more attractive.
India’s External Investment Deficit: A Key Barrier
Unlike other Asian nations with robust foreign asset positions, India’s external investment balance is in the negative. This is in stark contrast to countries like Taiwan, South Korea, and Singapore, which hold net positive overseas investments. These nations are well-positioned to convert foreign gains into local currency strength, but India’s deficit puts the rupee at a disadvantage in this area.
Geopolitical Tensions
The rupee’s performance is also being affected by rising geopolitical instability. Escalating conflict in the Middle East, particularly between Iran and Israel, has driven crude oil prices upward. As a large importer of oil, India’s economy is vulnerable to such price hikes, which can worsen its trade imbalance and increase inflationary risks. These conditions place additional strain on the INR.
The Central Bank’s Intervention Strategy
Recently, it made a significant policy shift by lowering interest rates by 50 basis points — the most substantial rate cut in several years. This move was aimed at bolstering domestic growth amid stable inflation rates. However, a lower interest rate can also reduce foreign investor returns, decreasing the appeal of rupee-denominated assets. This makes the currency less competitive compared to those offering higher yields.
Falling Foreign Investments Weaken Market Sentiment
Another important factor is the behavior of foreign investors. On a single day, June 12, foreign investors pulled out around \$383 million from Indian equities while only adding \$5 million to bond holdings. This imbalance indicates waning investor interest and leads to downward pressure on the rupee in the foreign exchange market.
Forecast for the Indian Rupee Going Forward
Given the current situation, the outlook for the INR remains cautious. Unless India can improve its international investment balance and energy import costs stabilize, the currency may continue to struggle. Though RBI interventions are expected to continue, they may only provide short-term relief without addressing the deeper issues influencing the rupee’s position. Structural reforms and improved investor sentiment will be key to reversing the trend
Summary:
This is mainly due to India’s negative international investment balance, the impact of rising oil prices, and the recent withdrawal of foreign investment. While the Reserve Bank of India is taking steps to support the currency, lasting improvement depends on resolving deeper structural and market challenges.
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