Rupee sidesteps RBI rate cut to end higher, posts worst week in over 2 yrs

The Indian rupee strengthened on Friday after struggling for most of the week as global markets were jolted by fears of a trade war and foreign portfolio outflows persisted, pushing the rupee to its lifetime low past the 87 handle.

The Reserve Bank of India cut its key interest rate for the first time in nearly five years and signalled a less restrictive policy approach, seeking to provide stimulus to a sluggish economy. 

Expectations that the Indian central bank will cut rates had also weighed on the rupee earlier in the week.

On the day, the currency rose about 0.2 per cent to end at 87.4250 against the US dollar. It declined by nearly 1 per cent on the week though, its worst weekly performance since December 2022. 

Asian currencies were mostly higher on Friday and the RBI likely intervened to support the rupee ahead of the policy decision.

The rate cut had a negligible impact on the rupee with the dollar-rupee pair "finding support from the Governor's statement that the RBI FX intervention policy will continue to focus on smoothening excessive and disruptive volatility," said Sameer Karyatt, executive director and head of trading at DBS Bank India.

In his first public remarks on the currency, Governor Sanjay Malhotra reiterated the RBI's long-held position that interventions are only intended to smoothen "excessive and disruptive volatility."

The rupee had declined to its all-time low of 87.5825 on Thursday after breaching the 87 handle on Monday, following the announcement of US tariffs on Canada, Mexico and China.

While tariffs on Canada and Mexico were delayed consequently, the rupee was unable to claw back its losses as traders positioned for a rate cut by the RBI and as foreign selling of Indian stocks persisted.

Overseas investors have net sold about $9.5 billion of Indian stocks over 2025 so far.