Re Settles to 3 Month High Against Dollar

Mumbai: The Indian rupee gained 32 paise against the dollar on Friday, the last trading session of the financial year, to close at 85.46, logging its highest level in three months on the back of foreign portfolio inflows, stable crude prices and a weaker dollar.

Radhika Rao, Executive Director and Senior Economist, DBS Bank, said, “Rupee assets, including the currency, equity and bond markets, have fared well this month, with focus likely to shift to tariff announcements due early next week.”

“Breaking above 86, the rupee has erased its year-to-date losses, benefiting from a resumption in foreign inflows into the equity as

well as debt markets, helped also by a likely current account surplus in 1Q25,” added Rao.

The domestic unit recorded its biggest monthly gain in over six years, appreciating 2.17 per cent in March, the highest since November 2018.

Following an extended period of outflows that kicked off in October last year, the direction of foreign portfolio flows appears to have reversed over the last few days. Foreign investors bought Rs 32,000 crore into Indian markets in the past six trading sessions, boosting the rupee. However, month-end dollar demand from importers and oil marketing companies (OMCs) limited further gains.

At the interbank forex market, the rupee opened at 85.64, hit an intraday high of 85.40, and touched a low of 85.70 before settling at 85.46.

The currency’s relative underperformance between December 24 and early March 2025 had helped to arrest its overvaluation on real effective exchange rate (REER) basis. The Rupee REER returned to its long-term average range in February 2025 (at 102.40) versus a record high of 108.1 in November 2024, suggesting that the rupee is more evenly valued now vs past few years.

The country's forex reserves jumped by $ 4.529 billion to $ 658.8 billion during the week ended March 21, the RBI said on Friday. In the previous reporting week, the overall reserves had increased by $ 305 million to $ 654.271 billion. The forex reserves had increased to an all-time high of USD 704.885 billion in September 2024.

Meanwhile, India’s current account deficit (CAD) widened, albeit to a lower-than-expected in the October- December quarter at $11.5 billion from $10.4 billion in the year-ago quarter, led by a higher merchandise trade deficit. This amounted to 1.1 per cent of GDP,

similar to the year ago levels, although it was well below the 1.8 per cent of GDP seen in Q2 FY2025.

Aditi Nayar, chief economist at ICRA, expects the current account to witness a surplus of around $4-6 billion in Q4 FY2025, aided by a seasonal uptick in merchandise exports and the resulting moderation in the merchandise trade deficit, as well as healthy services surpluses.