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Informist, Monday, Jun. 2, 2025

 

By Pratiksha and Sourabh Kumar

 

MUMBAI – After depreciating over 1% in May, the rupee is expected to end this month little changed against the dollar as sustained weakness in the dollar may offset the impact of dampened risk sentiment among investors amid uncertainty related to US tariff policies. According to the median of estimates by 16 banks, brokerages, and corporates polled by Informist, the Indian unit may close this month at 85.50 a dollar. The rupee had closed at 85.58 a dollar on Friday.

 

Even though US President Donald Trump announced a 90-day pause on reciprocal tariffs in April, his unpredictable statements on trade have continued to make investors across the globe jittery. Uncertainty related to trade deals between the US and other countries have also kept investors on the edge. Trump Friday accused China of violating an agreement with the US to mutually roll back tariffs, increasing concerns of a re-escalation in global trade tensions. Trump has also pledged to double tariffs on steel and aluminium imports starting Wednesday. 

 

Market participants, however, expect weakness in the dollar to continue providing a cushion to the Indian currency. The index, which measures the strength of the dollar against a basket of six major currencies, remained broadly weak in May owing to softer economic data and uncertainty related to tariff policies. The dollar index fell 0.2% on month to 99.44 in May.

 

"Uncertainties surrounding US fiscal and trade policies are exerting downward pressure on the dollar relative to other major currencies. The divergent trend between the US dollar and US Treasury yields further indicates underlying weakness in US economic fundamentals," Dilip Parmar, currency analyst at HDFC Securities, said. 

 

However, market participants expect weakness in the US currency to be limited as the US Federal Open Market Committee is expected to stay pat on rates amid the uncertainty surrounding the impact of Trump's volatile trade policies. The odds of a rate cut at the next FOMC meet outcome on Jun. 18 was only 1.3% as of Monday, as per the CME FedWatch tool. The downside in the dollar index may be limited at 96-97, market participants said. At 1929 IST, the dollar index was at 98.87. 

 

Even amidst the persisting uncertainty around tariff policies, market participants expect India to continue attracting robust foreign fund inflows, largely because of strong economic fundamentals – strong GDP growth, lower inflation, and falling interest rates. "We believe once the tariff situation calms down and Fed starts cutting interest rates, capital flows should come into India with domestic growth looking better. The combination of domestic growth and favourable current account should allow the rupee to rise moving ahead," said Sakshi Gupta, principal economist at HDFC Bank.

 

According to the poll, the rupee will appreciate slightly to 85.00 a dollar by the end of the September quarter.

 

After seeing outflows for the first two months of 2025, Indian equities have attracted overseas investments. In May, foreign portfolio investors infused $1.74 billion in domestic equities, against $1.27 billion in April.

 

Market participants also expect overseas investment into multiple initial public offerings, scheduled to open this month, to boost the Indian currency. Initial public offerings of Travel Food Services Ltd. and National Securities Depository Ltd. of sizes of about INR 20 billion and INR 30 billion, respectively, are likely to open this month, as per reports.

 

In May, the rupee traded in a wide band of 83.7525-86.1050 a dollar, the most in a month since November 2022, as the Reserve Bank of India continued its hands-off intervention strategy. Poll respondents expect the rupee to remain in a relatively wider range in June as well, with the central bank only excepted to intervene in case of extremely sharp volatility on either sides. The poll estimates were in a wide range of 83.50-86.76 per dollar, depicting the uncertainty that lies ahead for the Indian currency.

 

"The broad range (in May) also had to do with the Indo-Pak tensions. I don't think that sentiment will spill over. Usually the rupee's trading band under Governor (Sanjay) Malhotra has widened and that may continue, mostly in line with other currencies," said Dhiraj Nim, FX strategist at ANZ Bank India.

 

June will be a pivotal month for monetary policy, both domestically and globally, with key decisions expected from the European Central Bank, Bank of Japan, Bank of England, the US Federal Reserve, and the RBI. The RBI's Monetary Policy Committee is widely expected to lower the policy repo rate by 25 basis points for the third consecutive meeting on Friday, an Informist poll showed. 

 

"The stance adopted by these major central banks will be a primary area of focus for market participants, alongside developments in trade tariffs and broader geopolitical news, all of which have significant implications for global economic stability and currency markets," Parmar said.

 

While the rupee is broadly expected to be stable this month, multiple risk events, especially developments on the tariff front, can still throw all calculations out of the window.

 

POLL DETAILS

 

Participant	Jun-end	Sept-end
Large State-owned oil Co	86.76	-
CSB Bank	85.25-85.75	84.75-85.25
Karur Vysya Bank	85.60-85.80	-
IBM India	85.60	86.50
Bank of Bahrain and Kuwait	83.50-86.50	-
Mecklai Financial Services	85.20	84.50
Federal Bank	84.50-86.50	-
Shinhan Bank India	84.20-85.90	84.60-86.30
ANZ Bank	85.00	85.50
HDFC Securities	84.60-85.90	84.30-86.20
Finrex Treasury Advisors LLP	84.80	83.80
HDFC Bank	85.00-86.00	84.00-85.00
IDFC Bank	85.50	-
Private sector bank	85.00-86.00	-
UCO Bank	85.30	-
ICICI Bank	85.00-86.00	83.50-86.00
Median	85.50	85.00

 

End

 

US$1 = INR 85.3825

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Tanima Banerjee

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

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