Indian Rupee Weaks Against Trading Partner Currencies

The rupee's real effective exchange rate fell to 100.36 in June from 101.12 in May, indicating a weaker currency against a basket of 40 trading partner currencies after adjusting for inflation. The REER measures the rupee's value vis-à-vis not only the dollar, but other global currencies as well.

The Indian rupee's real effective exchange rate (REER) has shown a notable decline, dropping to 100.36 in June from 101.12 in May, according to data from the Reserve Bank of India (RBI). This indicates a weaker currency against a basket of 40 trading partner currencies after adjusting for inflation. The REER, which measures the rupee's value relative to other global currencies, has been influenced by a variety of factors, including U.S. tariffs and global inflation dynamics.

Over the past year, the REER has experienced significant fluctuations. It climbed from 103.66 in January 2024 to 108.14 in November 2024 before retreating to 107.2 in December 2024. The recent fall in the REER suggests that the rupee has weakened in value relative to its trading partners.

Several factors have contributed to this weakening trend. The U.S. dollar's strength has been a significant driver, as the U.S. Federal Reserve has been tightening monetary policy to combat inflation. Additionally, U.S. tariffs on Indian goods, implemented as a penalty for purchasing Russian oil, have put downward pressure on the rupee. The recent intervention by the RBI to sell at least $5 billion worth of U.S. dollars in both onshore and offshore markets further underscores the central bank's efforts to stabilize the currency [3].

Moreover, the recent softer U.S. dollar, driven by expectations of a Fed rate cut in September, has provided some respite to the rupee. The July U.S. inflation data, which showed modest consumer price increases, has also bolstered hopes of a Fed rate cut, lifting investor confidence and supporting emerging market currencies like the rupee [4].

Despite these interventions and favorable market conditions, the uncertainty over U.S. tariffs and the upcoming Trump-Putin summit in Alaska remains a key risk event that could sway the currency's direction. The summit aims to explore a resolution to the war in Ukraine, which could potentially impact additional tariffs imposed on Indian goods.

In conclusion, the weakening of the Indian rupee's real effective exchange rate reflects a combination of global inflation concerns, U.S. tariffs, and monetary policy shifts. The RBI's recent interventions and the outlook for a Fed rate cut provide some support to the rupee, but the uncertainty surrounding U.S. tariffs and geopolitical events continues to influence its trajectory.

References:
[1] https://www.reuters.com/world/india/rupee-rise-open-ndf-lift-us-tariffs-inflation-radar-2025-08-11/
[2] https://www.business-standard.com/economy/news/rupee-s-reer-eases-to-100-36-in-june-as-currency-weakens-against-peers-125081500802_1.html
[3] https://economictimes.indiatimes.com/markets/forex/rbi-said-to-have-sold-at-least-5-billion-to-boost-rupee/articleshow/123235020.cms
[4] https://sg.finance.yahoo.com/news/tariff-bite-missing-us-inflation-031323915.html