The recent depreciation of the Indian rupee past the psychological 90 mark against the US dollar does not reflect any underlying weakness in India’s economic fundamentals, according to a research report released by SBI on Thursday. Instead, the slide has been attributed to global uncertainty, foreign portfolio outflows, and delays in trade-related developments between India and the United States.
The SBI Research report stated that the rupee’s movement is largely driven by external factors rather than domestic macroeconomic stress. It highlighted three primary reasons behind the currency depreciation: uncertainty surrounding the India–US trade deal, foreign portfolio investors pulling out of Indian equities after two consecutive years of strong inflows, and the Reserve Bank of India’s stance of limiting excessive intervention in the foreign exchange market.
The report also pointed to growing activity in the offshore non-deliverable forward (NDF) market and signs of a strengthening US dollar index, both of which have added pressure on emerging market currencies, including the rupee.
Contrary to market concerns, SBI Research noted that fears of a widening trade deficit significantly weakening the rupee are overstated. Between April and October this year, India’s combined goods and services trade deficit stood at $78 billion, only marginally higher than the $70 billion recorded during the same period last year. Analysts cited in the report believe negative sentiment linked to trade data has been oversold in financial markets.
The rupee has depreciated around 5.5 per cent against the US dollar since April 2, when the United States announced steep tariff hikes across several countries. This decline is greater than that seen in many major global currencies during the same period.
A key pressure point highlighted in the report is the high tariff burden on Indian exports. India faces a 50 per cent tariff, significantly higher than those imposed on countries such as China, Vietnam, Indonesia, and Japan. SBI Research said this disparity has contributed notably to the current pressure on the rupee, despite India’s efforts to diversify its export markets and push new free trade agreements.
The report estimated that nearly $45 billion worth of Indian exports, largely labour-intensive products, could be directly affected by US tariff measures. These developments, the report said, have weighed on currency sentiment even as India’s broader economic indicators remain stable.
Overall, SBI Research maintained that the rupee’s depreciation reflects short-term global and policy-linked factors rather than structural issues within the Indian economy.
