Indian Rupee Sees Gains Amid Market Volatility

The Indian rupee, which had been under pressure throughout the financial year 2024-25 due to various domestic and global factors, saw a significant turnaround in March, making it one of the best-performing Asian currencies. The rupee appreciated by 0.22% by the end of March 2025 against the US dollar, as per Bloomberg data. Alongside, the Taiwanese dollar gained 0.01%, the Chinese renminbi 0.58%, and the Malaysian ringgit 0.76% against the US dollar. The recovery in March also propelled the rupee to a three-month high.

Rupee appreciated by 0.22% against the US dollar in March 2025.
Among Asian peers, the rupee outperformed the Taiwanese dollar and renminbi.
Recovery in March marked a three-month high for the currency.

Foreign Portfolio Investor (FPI) Inflows Boost Rupee

Foreign investments into India’s equity and debt markets provided crucial support to the rupee. According to data from the Clearing Corporation of India Ltd (CCIL), investments in government securities under the Fully Accessible Route (FAR) rose by ₹21,000 crore in March. Additionally, foreign institutional investors (FIIs) shifted to being net buyers in Indian equities, reversing their previous trend of outflows. Analysts from CareEdge noted that in March 2025 alone, net FPI inflows amounted to $2 billion, primarily driven by increased debt investments.

Foreign investments in government securities increased by ₹21,000 crore in March.
Net FPI inflows stood at $2 billion after months of outflows.
Debt investments played a major role in supporting the rupee’s appreciation.

Weaker Dollar Index (DXY) Aiding the Rupee

The depreciation of the US dollar index (DXY) further contributed to the rupee’s strength. The dollar index, which measures the value of the US dollar against a basket of six major currencies, fell to 104.162 on April 1 from 106.747 on March 3. A declining dollar index generally leads to increased investment in emerging markets like India, attracting foreign capital. As the dollar weakens, investors seek higher returns in developing economies, adding momentum to the rupee’s appreciation.

The US dollar index dropped from 106.747 to 104.162 in March.
Weaker dollar encouraged foreign investments in Indian markets.
Rupee gained strength as investors sought better returns in emerging markets.

Trade Deficit Narrows, Strengthening the Rupee

A narrowing trade deficit has provided another strong support factor for the rupee. India’s trade deficit shrank to $14.05 billion in February, marking a significant improvement from the nearly $23 billion deficit in January. The rare overall trade surplus of $4.5 billion in February also played a role in strengthening the rupee. Compared to the previous year, the trade gap in goods was lower than the $19.51 billion recorded in February 2024. The commerce ministry attributed this improvement to a sharper decline in imports relative to exports.

India’s trade deficit narrowed to $14.05 billion in February.
Overall trade surplus of $4.5 billion recorded for the month.
Lower imports compared to exports contributed to rupee strength.

Crude Oil Price Decline Reduces Pressure on the Rupee

A steady decline in Brent crude oil prices over the past few weeks has also helped stabilize the rupee. India imports more than 80% of its crude oil requirements, making global oil prices a crucial factor in determining currency movements. Brent crude oil prices eased to $74 per barrel in March, down from $80 per barrel in January. Lower crude prices mean reduced demand for US dollars from oil importers, thereby easing downward pressure on the rupee. Analysts at CareEdge predict oil prices will remain favorable, ranging between $65 and $75 per barrel in FY26, driven by low demand, OPEC+ production increases, and US efforts to boost supply.

Brent crude oil prices fell from $80 per barrel in January to $74 in March.
Lower oil prices reduced India’s dollar demand, easing rupee pressure.
Oil prices expected to stay within $65-$75 per barrel in FY26.

Inflows from External Commercial Borrowings (ECBs) Strengthen Currency

The ability of Indian companies to secure foreign loans at competitive rates has also provided relief to the rupee. In March, three Indian firms—Truhome Finance (formerly Shriram Housing Finance), SMFG India Credit, and Satin Creditcare Network—raised a combined $375 million through external commercial borrowings (ECBs). These borrowings, conducted in dollar terms, help companies reduce their reliance on domestic financial institutions while bringing in foreign exchange reserves, indirectly supporting the rupee. Notably, Truhome Finance secured a $100 million syndicated social ECB from DBS Bank and Sumitomo Mitsui Banking Corporation (SMBC).

Indian companies raised $375 million through external commercial borrowings in March.
Truhome Finance secured a $100 million ECB from DBS Bank and SMBC.
ECB inflows strengthened India’s foreign exchange reserves, supporting the rupee.