Uncertainty in US trade and fiscal policy contributed to a general strengthening of EME currencies, says RBI

The Indian rupee (INR) appreciated by 0.4 per cent (m-o-m) vis-vis the US dollar and exhibited low volatility during May 2025, according to RBIs latest bulletin. Uncertainty surrounding the US trade and its fiscal policy contributed to a general strengthening of EME currencies vis-vis the US dollar. In real effective terms, the INR appreciated (m-o-m) by 0.3 per cent in May 2025 as Indias inflation (on a m-o-m basis) was 0.9 percentage points higher than the weighted average inflation of its major trading partners, more than offsetting the depreciation in the nominal effective exchange rate (NEER). Meanwhile, the US dollar witnessed a depreciating trend, hitting a three-year low on June 12 following tariff uncertainty and fiscal debt concerns. Since June 13, the US dollar, however, strengthened somewhat in response to rising geo-political risks. The US dollar appreciated somewhat in the first half of May, fueled by a USChina tariff suspension but shed gains subsequently on growth slowdown fears and fiscal concerns. Mirroring the dollar movement, the MSCI EME Currency Index has increased since May, with equity markets recording inflows; however, a reversal in trend has been witnessed since mid-June.

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