Currency derivatives markets also point to the likelihood of increased volatility going forward as trade tensions continue to weigh on market sentiments
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The exchange market pressure (EMP) index indicates the rising depreciation pressure on the rupee , according to the latest Financial Stability Report (FSR).
EMP is used to measure external pressures on the currency and is constructed as a weighted average of exchange rate movements and changes in forex reserves.
Importantly, the exchange rate has displayed wider trading range, which in turn has imparted higher volatility, the report, which has contributions from all financial sector regulators, said.
“Currency derivatives markets also point to the likelihood of increased volatility going forward as trade tensions continue to weigh on market sentiments. Risk reversal has moved to positive territory, signalling bearish near-term outlook on the rupee,” per the report.
The FSR noted that the rupee depreciated against the dollar , reflecting falling terms of trade due to the impact of tariffs and slowdown in capital flows.
With the effective US tariff rate on India being the highest compared to its trading partners, the rupee depreciated despite the broad weakening of the dollar against other major and Asian currencies.
Published on December 31, 2025
