Rupee Lags as RBI Signals Strategic Currency Positioning

Mumbai, July 2, 2025 – India’s rupee has posted one of the weakest performances among global currencies in the first half of 2025, yet the Reserve Bank of India appears unfazed. Rather than reflect macroeconomic weakness, this strategic softness aligns with a broader policy to maintain India’s export competitiveness against regional trade rivals—most notably China. Even as most major currencies appreciated against a retreating dollar, the rupee stayed effectively flat, registering just a 0.02% gain. Analysts believe the RBI is deliberately benchmarking against the yuan, as China considers devaluation to offset US tariffs. In a global landscape of shifting supply chains, this calibrated currency stance is designed to protect India’s growing presence in labour-intensive exports like textiles, chemicals, and electronics.

Highlights

• Rupee appreciated just 0.02% in H1 2025, among weakest globally.

• RBI focuses on relative value against Chinese yuan, not dollar alone.

• Export competitiveness in sectors like textiles and electronics at stake.

• Currency policy aligns with global supply chain realignment goals.

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Forex Intervention and Trade Dynamics Shape the RBI’s Tightrope Walk

Behind this strategy lies subtle but consistent intervention. The RBI sold an estimated $8–9 billion between January and June 2025, according to market data, to curb upward pressure from foreign inflows. April alone saw $1.66 billion in net sales. With a current account deficit driven by oil imports, an overly weak rupee could inflate the national import bill. However, with Brent crude prices largely stable barring a conflict-driven spike, the RBI has found room to maneuver. India’s forex reserves, now over $698 billion, provide adequate cover. Yet, foreign equity investors remain wary—rupee depreciation erodes dollar-adjusted returns. So, while this currency playbook may not thrill equity bulls, it supports India’s ambitions as a competitive export powerhouse.

Highlights

• RBI sold $8–9 billion in H1 2025 to prevent rupee appreciation.

• Stable crude prices allowed room for strategic forex operations.

• India’s $698B forex reserves support RBI’s intervention capacity.

• Weak rupee reduces FII returns, adding pressure on equity valuations.