Rupee Stabilisation and Inflation Easing Bring Cautious Optimism

Why in the News ?

The rupee has strengthened to nearly ₹86 per US dollar, reversing its decline over the past six months. Additionally, inflation has softened, and foreign exchange reserves have rebounded. However, global risks like US trade policies require continued economic vigilance from the government and RBI.

Rupee Stabilisation and Inflation Easing Bring Cautious Optimism

Signs of Economic Stabilisation:

  • The rupee appreciated from ₹87.5 in February to ₹86 per USD, halting its six-month decline.
  • Foreign portfolio investors (FPI) have reduced outflows, aiding forex reserves recovery to $654 billion.
  • India’s merchandise trade deficit in February reached a 42-month low, improving external finances.

Declining Inflation and Favorable Agricultural Outlook

  • Consumer Price Index (CPI) inflation in February was 6%, below the RBI’s 4% target.
  • Food inflation was at 75%, aided by a strong rabi harvest and stable weather conditions.
  • A mild La Niña ensured good monsoons, preventing heat waves, benefiting crops like wheat, chana, and onions.

Need for Continued Vigilance

  • US trade policies, especially Trump’s tariff threats, pose risks to Indian exports.
  • The Sensex gained 5.4%, but economic risks persist.
  • The RBI and government must maintain macroeconomic stability, focus on fiscal consolidation, and ensure liquidity to sustain growth.