RBI likely to monitor rupee closely as trade gap grows-Experts

India's trade deficit widened to $21.54 billion in March 2025, up from $14.05 billion in February, driven by an unexpected surge in imports, official data showed. While exports turned positive after four months with a modest 0.7% increase to $41.97 billion, imports surged by 11.3% year-on-year to $63.51 billion. The increasing trade gap has raised concerns among market participants about the sustainability of the rupee and the Reserve Bank of India’s (RBI) likely policy response in the coming months.
According to analysts, the March data ,combined with a widening annual trade deficit of $282.82 billion in FY25—could test the RBI’s resolve in maintaining currency stability. “The RBI will likely intensify its presence in the foreign exchange markets to curb volatility in the rupee,”  Rahul Bajoria, Managing Director and Head of EM Asia Economics at Barclays reportedly stated. “A trade deficit of this magnitude puts downward pressure on the rupee, especially if capital inflows don’t offset it.”
The rupee has held steady in recent months, as the RBI actively manages volatility with its substantial forex reserves, which were last recorded at over $620 billion. Still, ongoing trade imbalances and changing global interest rates could push the central bank to take a more active role."The RBI is not targeting a particular exchange rate, but it is clearly prioritizing macro-stability and inflation containment," Radhika Rao, Senior Economist at DBS Bank,reportedly quoted as saying. “With import prices rising, especially for oil, there is a risk of inflationary pass-through, which the central bank will closely monitor. If the rupee weakens significantly, it could compound inflation risks at a time when monetary policy space is limited.”
ICRA’s Chief Economist Aditi Nayar added that despite the higher-than- expected trade deficit in March, India may post a current account surplus of $1-3 billion in Q4 FY25, offering some breathing space. “For the full year, we expect the current account deficit to remain manageable at around 0.9% of GDP, well below the levels that typically trigger macroeconomic concerns,” she noted.
Still, the composition of trade offers both opportunities and challenges. Commerce Secretary Sunil Barthwal emphasized that FY25 saw record non-petroleum merchandise exports, with overall exports (goods and services combined) touching a record level of $820.93 billion, buoyed by strong services sector performance. "Final services figures are still awaited, but we expect this to be the highest ever export performance by India," he said.
Exporters' bodies like the Federation of Indian Export Organisations (FIEO) remain cautiously optimistic. President S C Ralhan reportedly stated that the 5.5% increase in overall exports underscores the resilience of India’s service sector, which helped support the weak performance in merchandise exports—particularly in petroleum-linked categories, where falling global prices impacted revenue despite steady volumes.

(Business Correspondent)