Mumbai, India – July 16, 2025 – The Indian Rupee (INR) experienced a notable decline in early trading today, falling 22 paise to 85.98 against the US Dollar (USD). The rupee had opened at 86.02 against the dollar. This fresh dip follows a close of 85.76 on Tuesday, marking a return to weakening after recovering from 85.92 on Monday.

The local currency's performance today is influenced by a confluence of factors, including a rise in global crude oil prices, mixed foreign fund movements, and broader global economic uncertainties.

The Oil Factor: A Persistent Pressure 

A significant factor contributing to the rupee's current soft stance is the climb in international crude oil prices. Brent crude, the global oil benchmark, saw a 0.22% increase to USD 68.86 per barrel in futures trade. Given India's substantial reliance on imports for over 85% of its crude oil needs, higher prices inevitably inflate the nation's import bill, increasing dollar demand and exerting downward pressure on the rupee.

Global Shakes and Investor Pullback 

Beyond oil, the rupee's performance is deeply connected to the broader global economic picture. The OECD's latest Economic Outlook, released in early June 2025, projected a slowdown in global growth from 3.3% in 2024 to 2.9% in both 2025 and 2026. This deceleration is linked to significant obstacles in trade, stricter financial conditions, reduced business and consumer confidence, and increased policy unpredictability.

This worldwide slowdown, combined with escalating trade tensions, particularly from the US, is prompting investors to seek safety in currencies like the US Dollar. US President Donald Trump recently sent tariff warning letters to over 20 countries, cautioning that elevated import duties will come into effect from August 1, 2025, unless new bilateral trade agreements are secured.

Foreign Portfolio Investor (FPI) flows have shown mixed trends. While FPIs were net buyers in Indian equities on Tuesday, purchasing ₹120.47 crore, there was a net FII withdrawal of INR 13.51 billion for the week ending July 11, 2025. Overall, FPI flows for 2025 remain negative, with net outflows dominated by secondary equity selling. Year-to-date, total FPI outflows in equities amount to $11.49 billion, though IPO buying of $3.06 billion has partially offset this.

Trade Dynamics and the Current Account 

India's overall trade deficit for Q1 FY26 (April-June 2025) contracted by 9.4% to $20.31 billion compared to April-June 2024. This improvement was largely fueled by a strong 10.93% growth in services exports to $98.13 billion during the same quarter.

However, merchandise exports remained largely unchanged in June 2025 at $35.14 billion (compared to $35.16 billion in June 2024), indicating that global economic challenges continue to affect goods trade. Despite exports to the US jumping 23% in June, and electronic goods exports surging by an impressive 46.93% to $4.15 billion in June 2025, a persistent merchandise trade deficit (where India imports more goods than it exports) means the country consistently needs more dollars than it earns. Some projections suggest India's goods trade deficit could widen to $300 billion in FY26.

RBI's Actions and Future Outlook 

The Reserve Bank of India (RBI) actively works to manage currency swings, often stepping in by selling dollars to prevent the rupee from falling too sharply. Market participants frequently observe the RBI's presence, which helps cushion the rupee from severe drops in value, with analysts anticipating the RBI will continue to protect the 86.00 level for the rupee.

Looking forward, the rupee's path will be significantly influenced by global crude oil prices, the volume of foreign investment flows, and any progress on the India-US trade deal. While a robust pipeline of new stock market listings (India's NSE ranked fourth globally in H1 2025 for IPO fundraising, raising $5.51 billion) and strong local spending provide some resilience to the Indian economy (projected to grow at 6.5% in FY26), external factors continue to be the primary drivers shaping the immediate future of the Indian currency. Businesses involved in international trade should closely monitor these currency fluctuations to effectively manage their foreign exchange risks and operational costs.