Rupee Declines for Fifth Consecutive Month in February Amid Outflows and Hedging Demand
Rupee Declines : The Indian rupee continued its downward trajectory in February, marking its fifth consecutive month of decline against the U.S. dollar. Weighed down by sustained foreign portfolio outflows and heightened hedging activity in both the onshore and non-deliverable forward (NDF) markets, the rupee faced persistent pressure.
Rupee Hits Record Low, Falls 1% in February
The rupee ended February at 87.4950 per U.S. dollar, weaker than the previous close of 87.20. The domestic currency depreciated by 1% in February, slipping to an all-time low of 87.95 during the month. Despite these losses, intervention from the Reserve Bank of India (RBI) helped prevent excessive volatility and one-sided speculation against the currency.
RBI’s Intervention and Swap Auctions
To stabilize the rupee, the RBI conducted a three-year dollar-rupee buy-sell swap auction on the last trading day of February. The auction, which received bids 1.6 times the notified $10 billion amount, followed a $5 billion six-month swap in January. These interventions indicate the central bank’s active role in curbing extreme movements and ensuring stability in the forex market.
Foreign Portfolio Outflows Weigh on Rupee
One of the primary reasons behind the rupee’s decline has been the continuous exodus of foreign investments from Indian financial markets. In February alone, foreign investors pulled out nearly $3.5 billion from Indian equities, bringing the total outflows to approximately $12.5 billion in 2025.
The sharp outflows have been driven by multiple factors, including:
- Uncertainty in global trade policies
- Concerns over India’s economic growth
- Stronger U.S. dollar sentiment amid peak protectionism risks
Stock Market Sees Steep Declines
The impact of capital outflows has also been reflected in India’s stock markets. The BSE Sensex and NSE Nifty 50 suffered significant losses in February, falling by 5.6% and 5.9%, respectively. The downward movement in equities further weakened investor sentiment, adding pressure on the rupee.
Global Factors Driving Dollar Strength
The broader strength of the U.S. dollar has also contributed to the rupee’s depreciation. Recent comments from former U.S. President Donald Trump regarding trade tariffs have sparked concerns over global trade tensions. Trump announced that his proposed 25% tariffs on Mexican and Canadian goods will take effect on March 4, along with an additional 10% duty on Chinese imports.
This protectionist stance has created uncertainty in global forex markets, with analysts predicting a stronger dollar and weakness in emerging market currencies in the coming months.
Analysts’ Take: Rupee Likely to Face More Pressure
According to Dilip Parmar, foreign exchange research analyst at HDFC Securities, the outlook remains tilted in favor of the U.S. dollar due to continued demand from importers and persistent foreign investor outflows. Parmar highlighted that the dollar-rupee pair faces strong resistance around the 88 level, making further depreciation likely unless supportive interventions occur.
A report by ING Bank also suggests that FX protectionism risks will peak in Q2 2025, implying a stronger dollar and continued weakness in emerging market currencies, including the rupee.
Key Financial Ratios and Market Performance
The table below highlights key financial indicators and market performance metrics for February 2025:
| Indicator | Value |
|---|---|
| Rupee Closing Rate | 87.4950 per USD |
| Rupee Low in February | 87.95 per USD |
| Monthly Depreciation | 1% |
| Foreign Portfolio Outflows | $3.5 billion |
| Total Outflows in 2025 | $12.5 billion |
| Sensex Monthly Change | -5.6% |
| Nifty 50 Monthly Change | -5.9% |
| RBI Dollar Swap Auction | $10 billion (3-year) |
| January Swap Auction | $5 billion (6-month) |
Conclusion: Rupee’s Outlook Remains Challenging
As foreign investors continue to exit Indian markets and global trade tensions rise, the rupee’s outlook remains vulnerable. The RBI’s intervention efforts have helped curb excessive volatility, but strong resistance around the 88-mark suggests further depreciation risks.
With upcoming tariff implementations and a global flight to safe-haven assets like the U.S. dollar, the Indian rupee may face continued downward pressure in the coming months. Investors and policymakers will be closely monitoring developments to gauge the currency’s trajectory amid heightened economic uncertainty.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.