The rupee strengthened for the third consecutive trading session on Monday, closing at 86.80 per US dollar, marking a 20 paise increase from the previous close of 87. This appreciation was supported by a weak dollar and the sale of greenbacks by exporters.
The weakening of the dollar against major global currencies is attributed to concerns about a slowdown in the US economy and the potential impact of reciprocal tariff wars on global trade. Positive investor sentiment also played a role in boosting the value of the Indian rupee.
Siddhartha Khemka, Head of Research at Motilal Oswal Financial Services Ltd, noted that foreign institutional investors sold significantly less equities last week compared to the first week of March. This slowdown in selling activity suggests that there may be limited downside for the rupee in the near term.
Looking ahead, market participants will be closely watching the interest rate decisions of the US Federal Reserve, Bank of Japan, and Bank of England later in the week. The US Fed is expected to maintain its current interest rates amid concerns about inflationary pressures stemming from US tariff policies.
In other news, India’s merchandise trade deficit narrowed to a 42-month low of $14.1 billion in February 2025, down from $19.5 billion in the same month last year. This decline was mainly driven by lower imports of crude oil, gold, and silver.
Aditi Nayar, Chief Economist at ICRA, pointed out that part of the year-on-year drop in merchandise exports can be attributed to base effects related to a leap month. With the trade deficit significantly lower than the average for the fiscal year, there are expectations for a surplus in the current account in the ongoing quarter.
Overall, the rupee’s strength is being supported by a combination of factors including a weak dollar, positive investor sentiment, and a reduction in the trade deficit. The outlook for the currency remains optimistic, with market dynamics and economic indicators pointing towards stability and potential growth.
