The Indian rupee weakened for a fifth consecutive month in May, marking its longest losing streak since 2018. This decline is attributed to persistent foreign fund outflows driven by a stronger U.S. dollar and rising U.S. Treasury yields. Concerns over India’s trade deficit, exacerbated by elevated crude oil prices, also contributed to the rupee’s depreciation.
Foreign portfolio investors have been consistently selling Indian assets, impacting the rupee’s value. The rising dollar, fueled by expectations of continued Federal Reserve rate hikes, makes investments in dollar-denominated assets more attractive, further drawing capital away from emerging markets like India.
To combat the rupee’s weakness, the Reserve Bank of India (RBI) has been actively intervening in the foreign exchange market, selling dollars from its reserves. However, despite these interventions, the rupee has continued to face downward pressure. Analysts suggest that further depreciation is likely if global risk aversion persists and the dollar continues to strengthen. The extent of RBI intervention will play a key role in determining the magnitude of the rupee’s decline in the coming months.
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