Currency market remains steady in India, as gains made early on are balanced out by rising dollar demands from importers.
The Indian Rupee (INR) is projected to experience a moderate depreciation against the US Dollar in the near to medium term, influenced by external pressures such as US tariffs and domestic monetary policy. According to forecasts, the USD/INR pair is expected to reach approximately ₹89 by the end of 2025 and could rise further beyond ₹101 by the end of 2029 [1].
Recent data shows the INR weakening slightly, with a 4.14% decline over the last 12 months, and a small drop to around ₹87.25 as of August 19, 2025 [3]. Monthly forecasts suggest the pair will fluctuate around ₹84.5 to ₹89 through late 2025 and into 2026 [1][5].
The Reserve Bank of India (RBI) has maintained the repo rate at 5.5% as of early August 2025, adopting a neutral stance amidst the uncertainties from ongoing global trade tensions and US tariff announcements [2]. This cautious approach aims to balance inflation control while supporting growth amid external shocks. The RBI projects India's real GDP growth at around 6.5% for the current fiscal year, despite these risks [2].
The Indian bond market is sensitive to upcoming inflation data. Tighter or volatile inflation trends could significantly impact bond yields and prices. If upcoming inflation data shows a rise, bond yields may increase as investors demand higher returns to compensate for inflation, thereby lowering bond prices. Conversely, stable or easing inflation could support bond price stability or gains. The RBI's neutral policy suggests they are closely watching inflation metrics before adjusting rates further, which will influence the fixed income market [2][4].
The rupee has come close to breaching its all-time low of 87.95 in the past two weeks, amidst renewed US tariff threats and the resulting volatility in the currency market [2][4]. The U.S. inflation data for July is due on Tuesday, which will be key to gauge the Federal Reserve's rate-cut expectations and the dollar's direction [6].
During this period, banks have been vigilant due to the volatility from tariff uncertainty and the corresponding interventions being made by the central bank. Dollar demand from importers has offset early gains in the rupee, while the dollar index remained largely flat at 98.254 [4].
Intervention by the RBI in both the NDF and onshore spot markets has helped prevent a new low for the rupee. Private sector banks have been active, buying dollars on behalf of importer clients hedging positions [4].
Asian currencies, including the Philippine peso and South Korean won, held steady against a softer dollar. The Indian rupee closed at 87.6600 on Monday, unchanged from its previous close [7].
The U.S. President Donald Trump's decision to impose 50% tariffs on Indian goods has increased market volatility. The dollar index has been volatile due to growing expectations of a Federal Reserve rate cut next month [6].
In summary, the Indian Rupee is expected to weaken moderately, influenced by US tariffs and global trade uncertainties, with forecasts around ₹87-89 by year-end 2025 and above 90 thereafter [1][3][5]. The RBI maintains a neutral stance, balancing growth and inflation concerns, while the Indian bond market remains sensitive to upcoming inflation data [2][4]. This outlook reflects a complex interaction of external trade tensions, domestic monetary policy, and inflation dynamics influencing both the currency and bond markets in India.
- The ongoing depreciation of the Indian Rupee (INR) could be exacerbated by the recent announcement of US tariffs on Indian goods, thus increasing market volatility.
- Traders in the forex market have been closely monitoring the USD/INR pair, with projections suggesting it could reach approximately ₹89 by the end of 2025, and potentially even breaching the ₹101 mark by 2029.
- In light of these economic uncertainties, the Reserve Bank of India (RBI) has taken a neutral stance on domestic monetary policy, aiming to balance inflation control with supporting growth in the face of external shocks.
- The Indian bond market is vulnerable to fluctuations in inflation data, as any significant increase in inflation could lead to higher bond yields and decline in bond prices.
- Banks in India have been active in the trading of foreign exchange due to the high volatility caused by the current tariff uncertainty, with private sector banks buying dollars on behalf of importer clients to hedge against their trading positions.
