On Friday, the Indian rupee experienced a notable rise, gaining 33 paise to settle at 85.4625 against the US dollar. This surge marks the rupee’s highest value in three months, driven largely by robust foreign investments flooding into the Indian market.

In a remarkable turn of events, the rupee recorded its most significant monthly appreciation in over six years, climbing 2.17% in March 2025, the largest increase since November 2018. Foreign portfolio investors (FPIs) played a crucial role, net purchasing equities worth ₹18,130 crore during the week.

Factors Behind the Rupee’s Surge

Radhika Rao, an executive director and senior economist at DBS Bank, commented on the currency’s performance, stating, “By breaking through the 86.00 threshold, the rupee has wiped out its year-to-date losses. This improvement is linked to a resurgence of foreign investments in both equity and debt markets, alongside an anticipated current account surplus in the first quarter of 2025.” Rao also pointed out that the relative underperformance of the rupee from December 2024 to early March 2025 has helped correct its overvaluation based on the real effective exchange rate (REER).

• Rupee REER returned to its long-term average of 102.40 in February 2025, down from a peak of 108.1 in November 2024. This indicates a healthier valuation of the rupee compared to recent years.

Yearly Performance and Financial Year-End Dynamics

Despite the monthly gains, the rupee has faced a decline in the current financial year, depreciating by 2.5% overall. Beginning the financial year at 83.4037 per dollar, the rupee has lost 206 paise in total value.

Kunal Sodhani, vice president at Shinhan Bank, noted, “As we approach the end of the financial year, there is an increased demand for the rupee. Banks holding excess dollars often seek to exchange them for rupees before the year wraps up.”

Market Overview

In related market updates, the Nifty index closed at 23,500, while the Sensex dropped by 190 points, with IndusInd Bank and Wipro being the top losers of the day.

At the interbank foreign exchange market, the rupee opened at 85.6628, reached an intraday peak of 85.4063, and ultimately closed at 85.4625, marking a 0.38% gain for the day.

Meanwhile, the dollar index, which gauges the US dollar against a basket of six major currencies, increased by 0.09% to 104.43. Additionally, Brent crude futures saw a slight rise of 0.16%, settling at $74.15 per barrel.

With these positive trends, market analysts remain optimistic about the rupee’s trajectory, especially with the influx of foreign investments and a favorable economic outlook.