Rupee drops 19 paise, closes at 87.37/USD.
India’s foreign exchange reserves saw a significant boost, rising by USD 4.758 billion to reach USD 640.479 billion for the week ending February 21, 2025, according to the latest data.
This increase marks a continued upward trend in forex reserves, reflecting the stability and strength of India’s external financial position. The rise is attributed to higher foreign currency assets (FCAs), which constitute the largest portion of the reserves, along with gains in gold reserves and Special Drawing Rights (SDRs).
The surge in reserves comes amid volatility in the forex market, with the Indian rupee falling 19 paise to close at 87.37 against the US dollar. The RBI continues to intervene in the foreign exchange market to curb excessive fluctuations and maintain stability.
Analysts believe that strong forex reserves provide a buffer against external economic shocks and enhance investor confidence. With global uncertainties and fluctuating crude oil prices, India’s growing reserves serve as a key economic safeguard, ensuring resilience in the face of global financial challenges.
Mumbai: The rupee depreciated by 19 paise to close at 87.37 against the US dollar on Friday, as the strength of the American currency and a negative trend in domestic equities dented investor sentiment. The ongoing uncertainty surrounding US tariff imposition has added to the volatility in the financial markets, keeping traders on edge.
It fell to an intra-day low of 87.53 before ending the session at 87.37, marking a loss of 19 paise from its previous close. On Thursday, the rupee had settled almost flat with a marginal gain of 1 paisa at 87.18 against the US dollar.
Forex traders attributed the rupee’s depreciation to an elevated greenback against major currencies and sustained foreign institutional investor (FII) outflows. Additionally, month-end dollar demand by importers, amid uncertainty over US trade tariffs, contributed to the strengthening of the American currency.
Meanwhile, the dollar index, which measures the greenback’s strength against a basket of six major currencies, was trading 0.08 per cent higher at 107.33. In global commodities, Brent crude, the international oil benchmark, fell by 0.74 per cent to USD 73.49 per barrel in futures trade, offering some relief to India’s import bill.
In the domestic equity market, investor concerns led to a sharp sell-off. The 30-share BSE Sensex plunged by 1,414.33 points, or 1.90 per cent, to close at 73,198.10. Similarly, the Nifty fell by 420.35 points, or 1.86 per cent, to 22,124.70 points. Market analysts cited global economic uncertainty, rising bond yields, and fears of recession in major economies as key reasons for the decline.
Adding to the market volatility, the Reserve Bank of India (RBI) on Friday conducted a USD 10 billion US dollar-rupee swap to inject long-term liquidity into the system. The auction, which garnered robust demand, is set to be settled on March 4 and March 6. Under this swap operation, banks will sell US dollars to the RBI while agreeing to buy them back at the end of the swap period, helping to manage short-term liquidity needs.
Foreign Institutional Investors (FIIs) remained net sellers, offloading equities worth Rs 11,639.02 crore on Friday, according to exchange data. This persistent selling pressure has further weighed on the domestic currency.
Dilip Parmar, a research analyst at HDFC Securities, noted that the rupee has weakened for five consecutive months, largely driven by escalating foreign fund outflows.
“Despite the central bank’s attempts to curb volatility, the overall impact was limited as the US dollar continued to strengthen. This was largely due to market fears over President Donald Trump’s proposed tariff policies, which have driven up demand for the dollar as a safe-haven currency. The RBI’s liquidity adjustment via Buy/Sell USD-INR swaps and MSCI rebalancing flows were insufficient to stabilize the rupee,” he explained.
In a contrasting development, India’s foreign exchange reserves saw a notable increase. The latest RBI data, released on Friday, revealed that the country’s forex reserves surged by USD 4.758 billion to reach USD 640.479 billion for the week ending February 21. This marks a sharp recovery from the previous reporting week, where reserves had dropped by USD 2.54 billion to USD 635.721 billion.
The boost in reserves is attributed to an increase in foreign currency assets (FCAs), which form the largest component of forex reserves, as well as gains in gold reserves and Special Drawing Rights (SDRs). Analysts suggest that robust reserves provide a crucial buffer against external economic shocks and bolster investor confidence in India’s economic stability.
On the global front, escalating trade tensions continue to dominate headlines. President Donald Trump has announced plans to impose tariffs on Canada and Mexico starting Tuesday, in addition to doubling the universal tariff rate on imports from China from 10 per cent to 20 per cent. These aggressive trade policies have rattled global markets, fueling concerns of heightened inflation and supply chain disruptions.
The uncertainty surrounding these tariffs has left investors wary, as they brace for potential repercussions on global trade. Economists warn that prolonged trade disputes could dampen economic growth and create further volatility in currency markets worldwide.
With the rupee under pressure, forex traders will closely monitor developments in global trade policies, RBI interventions, and FII activity in the coming weeks. While India’s strong forex reserves offer some cushion, sustained foreign outflows and global economic headwinds pose continued risks to the domestic currency’s stability.