The Indian Rupee appreciated by 16 paise to close at 85.39 against the US dollar on June 2, 2025, as traders anticipated further easing by the Reserve Bank of India (RBI) and took cues from a weaker American currency. The rise in the domestic unit was, however, restrained by volatile equity markets, higher global crude oil prices, and outflows from foreign institutional investors (FIIs).

At the interbank foreign exchange market, the Rupee opened at 85.55 and fluctuated between 85.30 and 85.55 during the session before settling at 85.39, marking a 16 paise gain from its previous close of 85.55 on Friday, May 30.

According to forex analysts, the dollar weakened globally following trade uncertainties after US President Donald Trump’s announcement to double tariffs on steel and aluminium imports. The dollar index, which measures the strength of the greenback against a basket of six major currencies, declined by 0.55% to 98.71.

Meanwhile, the price of Brent crude oil surged 3.44%, reaching $64.94 per barrel, which put pressure on the Rupee at higher levels. Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan, noted that the spike in crude prices was a key factor that limited the domestic currency’s upside.

RBI Policy Decision Awaited

Investors and currency markets are now focused on the Reserve Bank of India's Monetary Policy Committee (MPC) meeting scheduled between June 4 and June 6. With inflation largely under control and GDP growth surprising on the upside, analysts are anticipating a dovish tilt from the central bank.

The RBI has cut interest rates gradually since August 2024, when it began reducing its benchmark rate from a 16-year high of 5.25%, currently standing at 4.25% after three successive 25 basis point cuts. Market expectations suggest another rate cut may be on the table, especially as inflation forecasts remain within the RBI’s comfort zone.

Macroeconomic Support for Rupee

On the macroeconomic front, India’s economy posted a stronger-than-expected 7.4% GDP growth for the January-March quarter (Q4 FY25). The growth was supported by robust consumption, especially in the urban sector, as well as a resurgence in the construction and manufacturing sectors.

Additionally, the government met its fiscal deficit target of 4.8% of GDP for the fiscal year 2024-25, a feat considered impressive in the current global economic context. This was supported by strong tax collections, especially the Goods and Services Tax (GST).

In May 2025, GST collections rose 16.4% to ₹2.01 lakh crore, maintaining the ₹2 lakh crore+ mark for the second month in a row. In April, GST collections had touched a record ₹2.37 lakh crore, reflecting better compliance and broad-based consumption.

Forex Reserves Surge

The RBI’s weekly data, released on May 30, 2025, showed that India’s foreign exchange reserves rose by $6.992 billion to $692.721 billion during the week ending May 23. This came after a previous weekly decline of $4.888 billion, which had taken the reserves down to $685.729 billion.

The surge in forex reserves further boosts the central bank’s ability to stabilise the Rupee, especially in times of global financial volatility or geopolitical uncertainty.

Domestic Market Update

India's benchmark equity indices ended the day in the red. The BSE Sensex fell by 77.26 points to 81,373.75, while the NSE Nifty dipped 34.10 points to 24,716.60. Analysts attributed the weakness to profit booking, caution ahead of the RBI policy announcement, and global market volatility.

FIIs remained net sellers, offloading equities worth ₹6,449.74 crore on Friday (May 30), contributing to the subdued investor sentiment.

PMI Signals Slower Manufacturing Growth

India's manufacturing sector also showed signs of moderation. The HSBC India Manufacturing Purchasing Managers’ Index (PMI) fell to 57.6 in May, down from 58.2 in April, marking the lowest reading since February. While still in expansionary territory, the dip was attributed to softening demand, inflationary pressures, and geopolitical risks.

Outlook for the Rupee

Looking ahead, the Rupee is likely to remain range-bound with a positive bias, depending on global oil prices, foreign capital flows, and RBI's policy cues. If the central bank signals further easing without alarming inflation fears, it could strengthen the Rupee further in the near term.

However, analysts caution that any adverse global developments, especially in oil markets or trade relations, could offset domestic gains.

As things stand, the Rupee's gradual appreciation, strong macro fundamentals, and a pro-growth central bank stance suggest moderate upside potential for the currency in the short term

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