Why the rupee is under pressure
Forex traders point to three main reasons for the sustained weakness in the rupee: a widening trade deficit, a delayed India‑US trade deal, and limited intervention from the central bank. Together, these factors are creating a market environment that favors a softer currency.
Widening trade deficit
A growing gap between imports and exports is one of the clearest drivers. When a country imports more than it exports, demand for foreign currency rises as importers pay overseas suppliers. This persistent demand puts downward pressure on the rupee, especially in sectors like energy and electronics where import bills remain high.
Impact of the delayed trade deal
Expectations around an India‑US trade agreement had supported hopes for stronger capital flows and clearer trade rules. With the deal delayed, that boost has been postponed. Uncertainty around tariff changes and market access can weigh on investor confidence, reducing inflows that might otherwise have helped stabilize the currency.
Limited central bank intervention
The central bank’s restrained approach has also mattered. Traders say officials have been cautious about using foreign exchange reserves aggressively to defend the rupee. While this conservatism preserves reserves for emergencies, it also leaves the market to adjust prices on its own, which can mean more volatility and a softer currency in the near term.
What this means for markets and households
- Market volatility: Currency moves may stay choppy until trade and policy signals become clearer.
- Higher import costs: Companies that rely on imported goods could see margins squeezed, and costs may pass through to consumers.
- Inflation risks: A weaker rupee can push up prices for fuel, electronics, and other imported goods.
- Investor sentiment: Foreign portfolio flows may slow if uncertainty persists, adding pressure to the currency.
What to watch next
Keep an eye on incoming trade data, updates on the India‑US trade negotiations, and any signals from the central bank about intervention. Global factors, like the strength of the dollar and international interest rate moves, will also influence the rupee’s path.