The Indian rupee opens higher after Diwali on Thursday, 23 October 2025, strengthening to around 87.85 against the US dollar from its previous close of 87.9275, driven by positive cues from a potential US-India trade deal and RBI interventions, as markets resumed after a two-day holiday break. The INR rises post Diwali 2025 holds significance for South Asia, where currency stability influences trade balances, import costs, and investment flows across economies like Pakistan, Bangladesh, and Sri Lanka, potentially easing regional inflationary pressures from imported goods.
INR Rises Post Diwali 2025: Key Drivers
The Indian rupee strengthens Diwali break with an opening gain of about 0.16%, as indicated by non-deliverable forwards before trading resumed. Traders attributed the movement to reports of an impending US-India trade agreement that could reduce US tariffs on Indian exports from 50% to 15-16%. This development, cited by sources familiar with the talks, is expected to boost India’s export competitiveness.
A banker noted: “The RBI seems to be drawing a soft line near 88 on one hand, and importers chasing hedges on the other.” The central bank has been active in preventing the rupee from breaching the 88 level, with interventions curbing downside risks.
Supporting data shows foreign investors purchased a net USD 100.4 million in Indian shares and USD 40.6 million in bonds on 21 October 2025, per NSDL figures. This inflow underscores confidence in India’s markets despite global headwinds.
Economic Context and Data Points
The dollar index stood at 99.05, while Brent crude futures rose 2.4% to USD 64.1 per barrel, adding mixed pressures. The 10-year US Treasury yield was at 3.96%. Asian currencies weakened broadly, but the INR rises post Diwali 2025 bucked the trend due to local factors.
Historical RBI reference rates provide context: On 20 October 2025, the USD/INR reference rate was 87.7861, according to official data. Earlier rates included 88.0023 on 20 October from market closes, showing volatility.
The one-month non-deliverable forward was at 87.96, with the onshore forward premium at 13.25 paise. The USD/INR pair has resisted breaking below 87.70-87.75 in recent sessions.
A currency trader at a private bank said: “The price action suggests that a wall of importer bids are sitting through at the sub-87.80 level.” Importers have increased hedging amid the rupee’s rally, potentially capping gains.
Impact on Trade and Inflation
The Indian rupee strengthens Diwali break could lower import bills for essentials like oil, which India relies on heavily. With crude prices up, a firmer INR mitigates costs for consumers and industries. In South Asia, this stability aids cross-border trade, where INR-denominated transactions are growing.
Gold prices fell nearly 6% over 21-22 October 2025, offering relief ahead of festive demand. However, corporate hedging may resist further appreciation.
Official data from NSE shows reference rates trending downward: 88.692 on 10 October 2025, indicating gradual strengthening. The INR rises post Diwali 2025 aligns with this pattern, supported by RBI’s liquidity measures.
Broader South Asian Implications
In a region facing currency depreciations such as the Pakistani rupee at around PKR 278 per USD and Bangladeshi taka at BDT 119. India’s rupee performance sets a benchmark. Strengthened INR could enhance India’s bargaining in SAARC trade talks, reducing dependency on the US dollar.
Economists note that sustained gains depend on global oil trends and US Federal Reserve policies. The proposed US-India deal, if finalised, might add USD billions to India’s exports annually.
Challenges Ahead
Despite the positive start, the Indian rupee opens higher after Diwali but faces resistance from importer flows and a stronger dollar. RBI’s recent variable rate repo auctions, including a 3-day VRR on 20 October 2025, aim to manage liquidity.
Minutes from the Monetary Policy Committee meeting on 29-30 September and 1 October 2025 highlight focus on inflation control amid external pressures.
Data on external commercial borrowings for August 2025, released on 14 October, shows steady inflows, bolstering reserves.
What’s Next
Looking forward, traders eye US-India trade updates and upcoming RBI data. The Indian rupee opens higher after Diwali, but sustained momentum will hinge on global cues and domestic policies.
Published in SouthAsianDesk, October 23rd, 2025
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