The Indian Rupee (INR) exhibited mixed trading at the commencement of Wednesday’s session, according to FXStreet data. The EUR/INR pair is currently trading at 92.38, a slight increase from the previous close of 92.36. Conversely, GBP/INR is trading at 110.56, reflecting a decrease from the prior close of 110.60 during early European trading hours.
The Indian economy has demonstrated an average growth rate of 6.13% between 2006 and 2023, positioning it among the world’s fastest-growing economies. This robust growth has attracted substantial foreign investment, including Foreign Direct Investment (FDI) in physical projects and Foreign Indirect Investment (FII) by foreign funds in Indian financial markets. Increased investment levels correlate with heightened demand for the INR. Fluctuations in Dollar demand from Indian importers also influence the INR’s value.
India’s significant reliance on oil and gasoline imports renders the Rupee susceptible to oil price fluctuations. As oil is primarily traded in USD, rising oil prices elevate USD demand, requiring Indian importers to sell more Rupees, thereby depreciating the INR.
Inflation exerts a complex influence on the Rupee. While inflation can devalue the Rupee by increasing the money supply, the Reserve Bank of India (RBI) may raise interest rates to curb inflation exceeding its 4% target. Elevated interest rates, particularly real rates, can strengthen the Rupee by enhancing India’s attractiveness to international investors. Conversely, declining inflation and lower interest rates may depreciate the Rupee.
India’s persistent trade deficit, characterized by imports exceeding exports, necessitates substantial USD demand for international trade settlements. Seasonal demand or order surges can lead to increased USD demand, weakening the Rupee as it is sold to meet this demand. Heightened market volatility can also trigger a surge in USD demand, similarly impacting the Rupee negatively.
