Currency derivatives markets also point to the likelihood of greater volatility in the future as trading tensions continue to weigh on market sentiment | Photo credit: Getty Images
EMP is used to measure external pressures on the currency and is constructed as a weighted average of exchange rate movements and changes in currency reserves.
Importantly, the exchange rate has shown a wider trading range, which in turn has caused higher volatility, said the report, which received contributions from all financial sector regulators.
“The currency derivatives markets also indicate the likelihood of higher volatility in the future as trade tensions continue to weigh on market sentiment. The risk reversal has shifted into positive territory, pointing to a bearish near-term outlook for the rupee,” the report said.
The FSR noted that the rupee depreciated against the dollar, reflecting declining terms of trade due to the impact of tariffs and a slowdown in capital flows.
As the effective US rate on India was the highest compared to its trading partners, the rupee devalued despite the broad weakening of the dollar against other major and Asian currencies.
Published on December 31, 2025
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