The Indian Rupee (INR) traded with a depreciating bias during the year amidst trade related uncertainties, geopolitical tensions, and foreign portfolio investment (FPI) outflows in the equity segment, RBI noted in its annual report 2025-26. The Indian Rupee (INR) experienced bouts of volatility amidst rise in geopolitical tensions and tariff related uncertainties. The widening of merchandise trade deficit and rise in oil prices during the last quarter added to the headwinds. The Reserve Bank intervened in the forex market through operations in the onshore/ offshore OTC and exchange traded currency derivatives segments to maintain orderly market conditions and contain excessive volatility in the exchange rate, the report noted.

The INR traded with a depreciating bias during 2025-26 and closed lower by 9.9 per cent. During H1:2025-26, INR gained initially amidst softening in the US dollar index and suspension of reciprocal tariffs by the US, touching the year's high of ₹83.75 per USD on May 2, 2025. It, however, came under pressure later amidst flaring up of border tensions, tariff related concerns and FPI outflows in the equity segment. The INR closed H1 at ₹88.79 per USD, lower by 3.8 per cent.

During H2:2025-26, after trading range bound initially, the INR came under pressure later amidst multiple headwinds including continued trade related uncertainties and widening merchandise trade deficit among others. INR pared some of its losses amid positive developments on the trade front during February. However, it witnessed a renewed bout of pressure in March amid worsening risk sentiments due to the outbreak of conflict in the Middle East and consequent surge in crude oil prices. FPI outflows and strengthening in the dollar index also weighed on the INR. For H2:2025-26, the INR closed lower by 6.4 per cent at ₹94.83 per USD.

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