The Indian rupee appreciated to 85.6 per USD on April 16, 2025, moving closer to the three-month high of 85.3 that was seen on April 3rd. This shift came as the dollar continued to show broad weakness, halting the previous trend of large banks selling rupees at the allowed amounts. The Indian rupee’s recent strength was further bolstered by the limited outflows, which were supported by a variety of global economic developments.

A key factor behind the rupee’s rise was the increase in oil production from OPEC+ nations, which helped to keep crude oil prices lower. The lower oil prices are critical for India, as oil and fuel imports account for a significant portion of its import bill. The softer oil prices provided relief to the Indian currency, offsetting the outlook of lower interest rates from the Reserve Bank of India (RBI).

In the latest Indian economic data, inflation dropped to its lowest in over five years in March 2025, reaching a level well below the RBI’s mid-point target of 4%. This drop in inflation is expected to give the RBI some room to maneuver in future monetary policy decisions, even though it is likely to focus on stimulating growth in the current economic environment.

Additionally, the latest data showed that India’s GDP grew by 6.5% for the last financial year, down from 8.2% in the previous year. The growth moderation has raised concerns within the RBI, prompting a more cautious approach to the outlook for interest rates, as the central bank seeks to balance inflation management with the need for continued growth. The combination of these factors has helped provide a degree of support to the rupee, which has been appreciating despite global pressures on emerging market currencies.

Overall, while the rupee is benefitting from external factors like weaker oil prices and a weaker dollar, the domestic economic scenario, especially the growth concerns tied to the GDP moderation, remains a critical consideration for policymakers at the RBI. The interplay of inflation and growth data will likely dictate the future trajectory of the Indian rupee and the broader Indian economy.

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