India’s Rupee and Reserves Fortify Amid Global Trade Anxiety

As global risk aversion spreads, the Indian rupee remains under the microscope, currently trading around ₹85.9 to the dollar. With the RBI's foreign exchange reserves comfortably above $700 billion, the central bank has the firepower to cushion extreme currency swings. Recent trimming of forward book exposures suggests a cautious strategy: shore up buffer levels today while retaining flexibility for tomorrow's shocks. The broader challenge remains whether volatile capital flows will pressure domestic yields or prompt strategic bond-market interventions.

In this backdrop, India’s domestic bond and equity markets are entering a delicate phase. Strong capital inflows into government bonds are offering support, but fund managers are alert to CPI, PPI, and U.S. data that might shift yield expectations. With trade tensions pushing global yields upward and central banks behaving defensively, the RBI may have to strike a balancing act—intervening enough to support the rupee without compromising liquidity or fuel inflation. For sectors reliant on imports—energy, electronics, autos—currency stability will be crucial for preserving margins and maintaining investor confidence ahead of Q2 earnings.