Dollar inflows moderate as regional currencies weaken and importers hedge; MUFG revises rupee outlook to ‘neutral’ with cautious tone for rest of 2025.
March 25, 2025: The Indian rupee snapped its nine-session winning streak on Tuesday, settling at 85.7550 against the US dollar, a 0.14% drop from the previous close. The correction comes after the rupee touched its year-to-date high of 85.49 on Monday.
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Several factors contributed to the pullback:
- Importers stepped in to hedge dollar liabilities at favorable levels.
- Dollar inflows slowed, despite earlier support from overseas investor inflows and corporate repatriations.
- Asian peers also slipped, putting pressure on the rupee.
Despite its nearly 2% gain for the month, analysts warn that the rupee faces headwinds from global uncertainties, especially the impact of U.S. tariffs, inflation risks, and a possible RBI intervention to shore up foreign exchange reserves.
MUFG Revises Outlook:
In a fresh report, MUFG has changed its rupee view from ‘cautious’ to ‘neutral’, now projecting the currency to close 2025 at 87.50, stronger than its earlier forecast of 88.50. However, the firm warned that the rupee remains vulnerable to downside risks, including:
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- Underpricing of India’s tariff exposure
- Weak domestic growth outlook
- Sticky inflation expectations
- Persistent weakness in broader Asian currency markets
On the day, the US dollar index hovered near 104.3, while most Asian currencies dropped between 0.1% and 0.3%.
Meanwhile, the 1-year USD/INR forward premium rose sharply, with the implied yield hitting a one-month high of 2.23%, following the RBI’s $10 billion FX swap auction results.
Market participants are now closely watching the upcoming U.S. consumer confidence data and remarks from Federal Reserve officials, which could further influence currency movement.
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