A recent report by Union Bank of India highlights the significant impact of the Reserve Bank of India’s (RBI) policy shifts on the Indian rupee’s value against the US dollar. The report notes that the rupee has already depreciated by 1.8% against the dollar in the first two months of 2025, surpassing the 1.5% depreciation seen in 2023 and nearly half the 3% depreciation recorded in 2024. The intensification of trade war risks and uncertainty surrounding US trade policies has led to market concerns, with the rupee and other Asian currencies under pressure.
The RBI’s new Governor, Sanjay Malhotra, has adopted a more flexible approach, allowing the rupee to move freely along with other emerging market currencies. This shift in stance is a departure from the previous RBI Governor’s preference for a stable rupee against the US dollar. The report attributes this change to the governor’s statement that the central bank is open to a more flexible rupee, which is likely to be more volatile.
The report also notes that the uncertainty surrounding US trade policies, particularly the potential implementation of reciprocal tariffs after April 1, is a cause for concern. The US is India’s largest export destination, accounting for 17.73% of India’s total exports in 2023-24. Any new tariffs or restrictions could impact Indian trade and further pressure the rupee. The report concludes that the market is closely watching the potential implementation of reciprocal tariffs, which could have a significant impact on the rupee’s value.