Rupee's journey from 80 per dollar to 90: The role of trade, FDI, and RBI, Pg13

Key Highlights:

• The Indian Rupee (INR) has weakened, crossing 90 per US dollar in recent weeks.
• Foreign Portfolio Investors (FPIs) withdrew approximately $18 billion from Indian equity markets in 2025.
• The Reserve Bank of India (RBI) sold $400 billion in FY25 to stabilize the rupee, but interventions decreased to $44 billion in the first half of FY26.
• Outbound Foreign Direct Investment (FDI) by Indian companies and repatriation of investments totaled $60 billion in the first nine months of 2025.

Detailed Insights:

• The rupee's depreciation began after breaching 80 per dollar in July 2022, following supply chain disruptions from the Russia-Ukraine conflict.
• Despite India's current account balance improving from a $31 billion deficit to a surplus in some quarters, the rupee continued to weaken.
• Factors contributing to the rupee's weakness include capital flow issues, anxieties about economic growth, and the impact of the incomplete India-US trade deal.
• Higher interest rates in developed countries and a global push for domestic manufacturing have reduced FDI inflows into emerging markets like India.
• The RBI intervenes in the foreign exchange market by selling foreign currency to stabilize the rupee, but has shown a higher tolerance for depreciation in FY26.
• The RBI also uses forward market interventions to manage the rupee's exchange rate without affecting current rupee supply and interest rates.
• Adjusting for the RBI's net forward position of over $60 billion negative, India's foreign exchange reserves are closer to $600 billion.

Key Concepts Involved:

• Foreign Direct Investment (FDI): Investment made by a firm or individual in one country into business interests located in another country.
• Foreign Portfolio Investment (FPI): Investment in the financial assets of a foreign country such as stocks or bonds.
• Current Account Balance: The difference between a nation's savings and investment, it is the sum of the balance of trade, net primary income, and net secondary income.
• Exchange Rate: The value of one currency expressed in terms of another.