When the Rupee Sighs: The Real Story Behind India’s Currency Slump Against the Yuan
In the last three months, the INRCNY currency pair has dropped 4.7%. For a cross-rate shaped by two of Asia’s economic titans, this is not just a gentle drift—it’s a revealing signal.
Monetary Alchemy: When Rate Cuts Meet a Fragile World
The Reserve Bank of India (RBI) has been busy. Since February 2025, it slashed policy rates by a full percentage point in a bid to spark growth. The repo rate now sits at 6.5%, while inflation, having cooled from last year’s peaks, still hovers near the upper band at 6.8%. The result? Real rates are barely above zero, and the rupee is now less alluring for yield-seeking capital, especially as the People’s Bank of China moves more cautiously.
While India’s monetary stance leans loose, China’s deflationary pulse and controlled easing have kept the yuan surprisingly steady. The PBOC’s incremental stimulus—rather than a flood—ensures the yuan doesn’t slip too far, even as China’s property sector sputters. The two central banks may be reading different chapters from the same economics textbook, but the outcome is clear: the rupee has become the weaker of the pair.
Trade Deficits: The Elephant in the Trading Room
India’s trade deficit with China is now a gaping $99.2 billion for FY 2024-25, marking a 14% year-on-year surge. Imports from China have jumped 11.5% to $113.45 billion, while India’s exports have shrunk by over 14% to $14.25 billion. Every iPhone assembled, every solar panel mounted, and every pharmaceutical batch mixed in India leans on Chinese inputs—and that’s a strategic vulnerability the FX market can’t ignore.
With semi-finished electronics, EV batteries, and tech hardware pouring in, the rupee faces relentless pressure. The currency market is a mirror, and right now it reflects a nation paying more for what it buys than it earns from what it sells.
Capital on the Move: When FDI and FPI Play Hard to Get
The past six months have witnessed a $29 billion outflow from Indian equities, the largest in recent memory. The Sensex, trading at 20x forward earnings, looks pricey compared to China’s Hang Seng at just 7x. Foreign investors—ever pragmatic—have shifted allocations to China and Hong Kong, lured by relative value and the promise of stimulus.
Even as India remains a top-five FDI destination, net inflows have cooled, and the direction of “hot money” is changing. The result? The rupee faces a double whammy: fewer dollars in the door, and more demand for yuan from trade and investment channels.
Diplomatic Chess: The Currency Moves in the Shadow of Giants
Geopolitics has not been a passive backdrop. The October 2024 border agreement eased some tension, but the strategic rivalry endures. China’s export controls on rare earths and critical tech have forced Indian supply chains to scramble. Meanwhile, the U.S. has slapped a 245% tariff on Chinese goods, prompting fears of trade diversion and “dumping” risk in India’s market.
Every new round of tariffs, every high-level summit, every border handshake or standoff sends ripples through the currency pair. In 2025, these ripples became waves—amplifying rupee weakness and keeping the yuan steady, if not stronger.
Intervention: The RBI’s Invisible Hand
With reserves at $695.1 billion by mid-August, India’s central bank has deployed buy/sell swaps and open market operations to stem rupee volatility. But as recent RBI research shows, interventions can “clean against the wind,” not change its direction. When global risk spikes—US VIX up, oil prices swinging—the rupee feels the strain, and the yuan’s stability looks even more attractive by comparison.
The Macro Mosaic: When Every Piece Matters
The rupee’s 4.7% slide against the yuan is not the result of a single shock. It’s a mosaic: policy divergence, trade imbalances, shifting capital, and strategic rivalry all woven together. With India’s inflation still above target, its trade deficit at record highs, and capital flows in flux, the FX market’s verdict is written in the chart.
What lies ahead? The answer will be written not just in central-bank communiqués, but in the next container ship’s manifest, the next FDI headline, and the next diplomatic handshake—or standoff—across the Himalayas. For now, the rupee sighs, and the yuan listens.