The Indian rupee has strengthened recently, supported by the Reserve Bank of India's (RBI) firm defence of the 87.40-87.50 territory against the U.S. dollar. This defence has been crucial in curbing speculative bets against the currency, particularly during periods of broad-based interbank dollar sales. As of early March 2025, the rupee was valued at 87.1550 per U.S. dollar, marking a modest increase of 0.1% for the day.

The RBI's intervention has been pivotal in stabilising the rupee amidst global market turbulence, largely driven by U.S. trade tariffs. President Trump's imposition of tariffs on imports from Canada, Mexico, and China has led to retaliatory measures from these countries, contributing to concerns about a potential slowdown in the U.S. economy and a weaker dollar.

Despite these challenges, the RBI's consistent support has helped maintain a resistance level for USD/INR around the 87.40-87.50 range, which is expected to persist unless significant risk-off events occur.

The rupee's performance is also influenced by domestic factors, including foreign investor outflows from Indian equities. Year-to-date, foreign investors have net sold approximately $15 billion in local equities, contributing to a nearly 2% depreciation of the rupee this year.

However, the RBI's interventions, including dollar sales by state-owned banks, have played a crucial role in mitigating these pressures and supporting the rupee.

Additionally, the RBI has undertaken measures like a $10 billion Forex swap to address liquidity concerns and stabilise the rupee further.

Reuters