Current Status
- INR = worst-performing Asian currency in 2025 (Jan–Dec CYTD).
- Depreciation: 4.3% vs USD (CYTD); 4% CYTD as per Axis Bank estimate.
- Recent movement: Broke RBI’s defended 88.8 level → touched 89.66 (21 Nov 2025) → recovered to 89.22.
Relevance:
GS3 – Economy
- Exchange-rate dynamics; comparison with Asian currencies.
- Drivers: strong USD, tariffs, gold imports, capital outflows.
- Trade deficit, external vulnerabilities, BoP pressures.
- Monetary policy implications; RBI intervention strategy.
GS2 – International Relations
- Impact of U.S. tariffs on India; geopolitical trade pressures.
- Currency as a geo-economic tool in India–U.S. relations.
Comparison with Asian Peers
- Indonesian Rupiah (IDR): –2.9% CYTD.
- Philippine Peso (PHP): –1.3% CYTD.
- Chinese Yuan (CNY): Appreciated due to PBOC/SAFE interventions.
- INR weaker vs Asia FX, especially vs current account surplus economies.
- Still stronger than JPY, KRW, which face domestic policy fragility.
Drivers of Depreciation
- Strong USD (global)
- USD appreciated 3.6% in last two months → pressure across emerging markets.
- U.S. Tariffs on India (Trump administration)
- 50% tariff on Indian exports.
- Triggered record trade deficit: $41.7 bn (Oct 2025).
- Direct negative impact on export competitiveness.
- Surge in Gold Prices & Imports
- Massive spike in global gold prices → investors shifted to gold & Gold ETFs.
- Gold demand up 200% (Oct).
- Gold import bill = $14.72 bn (Oct) → worsened trade deficit.
- Capital Outflows
- Depreciation pressure not due to current account (benign).
- Due to portfolio outflows amid global risk-off and high USD yields.
- Adverse Geo-economic Environment
- Combination of tariffs, commodity price shock, and geopolitical instability affecting trade flows.
Forward Outlook
- INR may slide to 90/USD if India–U.S. trade deal is delayed.
- Rupee trajectory dominated by global USD strength, not domestic fundamentals.
