Indian Rupee Ends May Down 1% Amid Trade Turbulence and Regional Tensions
The Indian rupee closed May with a decline of approximately 1%, marking a significant reversal after two consecutive months of gains. The currency settled at 85.5775 per dollar on Friday, capping a volatile month defined by geopolitical risk, central bank intervention, and global trade uncertainty.
From a Six-Month High to Monthly Loss
Early May saw the rupee reach a six-month high, buoyed by a strong start across Asian currencies and optimism over U.S.-China trade diplomacy. However, that momentum was derailed by a brief but impactful military conflict between India and Pakistan, which initially shook investor confidence.
Although the rupee rebounded after a ceasefire was announced, its trajectory remained downward for the rest of the month. Dollar demand from Indian corporates and foreign banks steadily weakened the currency, according to traders. The Reserve Bank of India’s dollar-buying operations—intended to prevent excessive appreciation—also helped cap the rupee’s rise in the 84.60–84.80 zone.
RBI’s FX Focus Limits Rupee Strength
The Reserve Bank of India (RBI) has made clear that replenishing foreign exchange reserves is a priority, especially after a drawdown from recent high levels. As of May 16, India’s FX reserves stood at $685.7 billion, about $19 billion shy of the record reached in September 2024.
Barclays analysts expect the rupee to underperform regional peers going forward, noting in a research note that the RBI is unlikely to support a stronger rupee given its reserve management strategy.
Regional Currency Trends and Dollar Outlook
Interestingly, most Asian currencies appreciated in May, with the Korean won leading gains. The offshore Chinese yuan, a key regional peer for the rupee, also rose nearly 1%. In contrast, the U.S. dollar ended the month broadly flat against major currencies, caught between optimism over trade de-escalation and legal uncertainty surrounding reciprocal tariffs.
This divergence further highlights the rupee’s underperformance compared to its regional counterparts, despite a relatively strong economic backdrop.
Eyes on GDP and PCE Data
Looking ahead, all eyes are on key macroeconomic releases that could influence the rupee’s next move. India’s Q4 FY24 GDP data is due shortly, with economists expecting a 6.7% year-on-year expansion, up from 6.2% in the previous quarter.
Simultaneously, the upcoming U.S. PCE inflation report—a preferred gauge for the Federal Reserve—will be critical in shaping global interest rate expectations and, by extension, emerging market currency flows.