Indian Rupee to Make Strong Recovery in the Second Half of Next Fiscal Year
According to a report by the Economic Research Department of the State Bank of India (SBI) released on December 17, the Indian Rupee, which has weakened primarily due to the 50% tariff imposed by the US on India, is expected to make a strong comeback in the second half of the next fiscal year.
On April 2, 2025, the US announced a large-scale tariff hike on all economies, which caused the Indian Rupee to depreciate by 5.7% against the Dollar, the highest among major economies. However, there have been intermittent periods of strength due to positive expectations surrounding the India-US trade agreement.
The report highlighted that while the Indian Rupee has weakened the most among its counterparts, it has not been the most volatile. "This clearly indicates that the 50% tariff imposed on India is one of the primary reasons for the current depreciation of the currency," the report said. It also mentioned that the large capital inflow driven by geopolitical uncertainties is now a thing of the past.
The report further explained that from 2007 to 2014, net portfolio inflows averaged USD 162.8 billion, whereas from 2015 to 2025 (so far), portfolio inflows have significantly decreased to USD 87.7 billion. The study stated that prior to 2014, the higher portfolio investment flows were a key reason behind the currency fluctuations.
The report added, "Due to delays in trade agreements and geopolitical uncertainties, the current situation is different. However, India's resilience in dealing with rising protectionism, labor supply shocks, and uncertainty in trade for a long period has been remarkable." The report titled “Trust in Rupee” also noted that while the geopolitical risk index has decreased since April 2025, the current average value for the period from April to October 2025 is still much higher than its ten-year average. This indicates the continued pressure global uncertainties place on the Indian Rupee.
According to the SBI analysis, "As per our assessment, the rupee is currently in a phase of depreciation. However, it is expected to emerge from this phase, and we believe that the second half of the next fiscal year will see a strong rebound for the rupee." The domestic currency took just 13 days to reach 90-91 per USD, and on Wednesday, it showed a significant improvement, closing at 90.38 against the dollar, rising by 55 paise.
India's foreign exchange reserves had reached USD 703 billion in June 2025, but as of the week ending December 5, 2025, they had fallen to USD 687.2 billion, mainly due to capital outflows and the Reserve Bank of India's potential interventions in the foreign exchange market to curb fluctuations in the exchange rate.