Weakest performance of Rupee at 87.21 against US dollar
Following 3rd February, 2025, Indian rupee recorded its worst intraday fall on 25th February, 2025. It faced a contraction of 0.57 percent which accounts to Rs. 87.21/USD. The reason for this is the expiration of the position of RBI in the non-deliverable forwards (NDF) segment. It resulted in an increase in demand for the US dollars leading to depreciation of the Indian rupee.
Despite the efforts of the RBI to mitigate losses, the performance of the Indian rupee was identified as the worst compared to other Asian currencies in the market. It closed at Rs. 87.21 per US dollar contracted from its previous close of Rs. 86.70 per US dollar.
Reasons for depreciation of Indian rupee
In the non-deliverable forwards (NDF) market, the Reserve Bank of India had a forward dollar position. It expired on 25th February, 2025, resulting in a surge in demand for US dollars in the market. Additionally, there was higher demand for US dollars in the market at the end of the month. The end of the month’s demand was driven by importers’ payments in the midst of growing uncertainty in the market due to Trump’s trade tariffs.
Apart from this, foreign portfolio investors sell-off their Indian equities leading to expansion in demand for US dollars in the market. Ultimately, it led to a contraction in the value of the Indian rupee.
According to the information of BSE data, foreign portfolio investors sold equity stock of around R. 3,529 crore on 25th February, 2025. As per the depository information, stocks worth Rs. 30,390 core are sold by foreign portfolio investors until now in the month of February, 2025.This fresh sell of equity shares in the market resulted in high pressure on performance of Indian rupee in the market as demand for Indian rupee contracted.
The dollar index was positioned at 106.65 US dollars against a basket of six important currencies in the world leading to a burden on rupee value. The rally in the dollar index indicates a surge in demand for US dollars compared to other currencies. Trump’s regime confirmed tariff enforcement on Mexico and Canada. It indirectly affected Indian rupee due increase in market uncertainty, boost to foreign investment outflows, severe impact on trade, and surge in demand for US dollars.
Apart from this, elevated crude prices, imposition of US tariffs on Iran oil sector, increase in demand for oil led to strong depreciation in rupee value.
Performance in relation to other Asian currencies
Following the depreciation of Thai Baht to 0.6 percent, depreciation of Indian rupee is considered as the second worst performer among Asian currencies’ performance in the market. The depreciation of Indian rupee is identified to be its largest intraday decline in the previous three weeks. Though, a marginal recovery in value of Indian rupee was recorded after this sharp drop.
In the present times, there is a probability of persistent depreciation in Indian rupee due to growing geopolitical concerns, inflation in crude prices, and strong capital outflows.
