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Informist, Wednesday, Jun. 25, 2025

--RBI: Rupee effective FX rate index 101.08 in May vs 100.78 in Apr 

--CONTEXT: Real FX rate index for trade-weighted, 40-currency basket 

MUMBAI – The rupee's real effective exchange rate against a basket of 40 currencies, in terms of trade-based weights, rose to 101.08 in May from 100.78 in April, according to data released by the Reserve Bank of India Wednesday.

While the rupee fell 1.1% against the dollar in May, the Indian currency's real effective exchange rate rose last month due to a sharper fall in other currencies against the greenback. The Indian currency depreciated last month because of heightened demand for dollar amid India-Pakistan tensions. While domestic financial markets experienced a net foreign fund inflows in May, it was the tension between India and Pakistan which dampened the risk sentiment towards the Indian currency in May. 

On a monthly average basis, "The Indian rupee appreciated by 0.4% (month on month) vis-a-vis the US dollar and exhibited low volatility during May 2025," according to a paper by central bank staff on the State of the Economy in the RBI monthly bulletin.

In the second week of May, Indian armed forces launched a military operations at nine sites in Pakistan and Pakistan-occupied Kashmir from where terrorists were suspected to be operating from. India cited cross-border linkages of terrorists involved in the Pahalgam terror attack, in which at least 26 people were killed and several injured. Indian strikes led to an escalation in the tensions, which pushed investors to purchase more dollars.

The Indian currency moved in a range of 2.35 rupees in May, the widest since November 2022. The dollar index remained broadly unchanged. The dollar index, which measures the strength of the greenback against a basket of six major currencies, fell 0.2% in May to 99.44.

"In real effective terms, the INR appreciated (month-on-month) by 0.3% in May as India's inflation (on a month-on-month basis) was 0.9 percentage points higher than the weighted average inflation of its major trading partners, more than offsetting the depreciation in the nominal effective exchange rate," the RBI monthly bulletin said.

The 40-currency basket includes the currencies of Angola, Australia, Bangladesh, Brazil, Canada, Chile, China, Egypt, the European Union, Ghana, Hong Kong, Indonesia, Iran, Iraq, Israel, Japan, Kenya, Kuwait, Malaysia, Mexico, Nepal, Nigeria, Oman, Qatar, Russia, South Korea, Saudi Arabia, Singapore, South Africa, Sri Lanka, Switzerland, Taiwan, Tanzania, Thailand, Turkey, Ukraine, the United Arab Emirates, the UK, the US, and Vietnam.  End

Reported by Sourabh Kumar

Edited by Akul Nishant Akhoury

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