Rupee opens slightly higher at 85.97/$; focus shifts to RBI dividend

By Admin

23 May, 2025

The Indian rupee started Friday’s trading session on a firmer note, recovering slightly after slipping to over a one-month low on Thursday. Opening 3 paise higher at 85.97 per dollar, the domestic currency showed early signs of strength amidst a backdrop of lower crude oil prices and a weakening dollar index.

Rupee’s Recent Slide and Market Sentiment

Despite Friday’s stronger opening, the rupee remains under pressure. So far in May, it has depreciated by 1.8%, with Bloomberg data indicating that the currency is poised for its third consecutive weekly loss. On Thursday, it breached the key 86.00 mark—closing at 86.00 for the first time in over a month—primarily due to persistent foreign outflows and triggered stop-losses from importers.

Amit Pabari, Managing Director at CR Forex Advisors, highlighted that the outflows from Indian equities continue to exert pressure on the rupee. Foreign Institutional Investors (FIIs) pulled out a net ₹5,045.36 crore from the cash market on Thursday, according to NSE data. The dwindling attractiveness of Indian bonds due to a narrowing yield differential with U.S. 10-year Treasuries—the lowest since July 2004—is further compounding the currency's weakness.

RBI Dividend in Focus

Amid currency fluctuations, all eyes are now on the Reserve Bank of India (RBI), which is expected to announce a dividend payout ranging between ₹2.2 trillion to ₹3.1 trillion for the financial year 2024-25 (FY25). This substantial surplus transfer is likely to bolster government finances and could provide a supportive backdrop for the rupee in the medium term.

Dollar Index Softens as US Fiscal Concerns Mount

The global currency landscape is also influencing the rupee. The US Dollar Index fell by 0.33% to 99.63 as fiscal worries surfaced following the US House's approval of a $3.8 trillion tax bill, potentially pushing national debt higher over the next decade. Although the dollar has shown resilience recently, analysts like Pabari suggest it is showing signs of fatigue, which could indirectly ease some of the pressure on the rupee.

Crude Oil Retreats Amid OPEC+ Talks

Crude oil prices, a significant factor for the Indian economy, traded lower on Friday morning. Brent crude dipped by 0.64% to $64.03 per barrel, while WTI crude fell 0.69% to $60.78. The downturn in prices comes amid reports that OPEC+ is considering a production increase in July, which could further temper inflationary pressures for oil-importing nations like India.

Outlook and Strategy

According to Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, “The rupee is expected to trade between 85.75 and 86.25 today. Exporters should sell on upticks in the dollar, while importers are advised to monitor levels carefully before taking positions.”

India's robust PMI figures—particularly the services PMI outperforming expectations—continue to support the long-term fundamentals of the rupee. As Bhansali suggests, India’s broader economic indicators remain strong, and this could encourage a sell-off in the dollar going forward.

Conclusion

While the rupee finds some respite today, its trajectory remains influenced by global macroeconomic factors, foreign investment flows, and policy signals from the RBI. The anticipated dividend from the central bank may act as a cushion, but currency markets are likely to remain volatile amid shifting global dynamics.