Currency depreciates 30 paise from 90.73.
The rupee on Tuesday marked an all time low, depreciating beyond 91 to 91.14 against the US dollar due to sustained foreign portfolio investor (FPI) selling and prolonged India-US tariff negotiations, making it one of the weakest major currencies globally this year and the weakest in Asia in 2025. The Reserve Bank of India (RBI) is closely monitoring this situation as a weaker currency would discourage foreign investments in India and fuel imported inflation. So far this year, the rupee depreciated 6 per cent against the dollar as compared with an average annual depreciation of about 3 per cent since 2000. Considering individual years, the rupee lost 11.3 per cent in 2022, 9.2 per cent in 2018 and a 24 per cent during the global financial crisis in 2008.
Factors leading to depreciation
- US-India trade uncertainity: the current trade war with US has disadvantaged the Indian exporters. The RBI is therefore allowing the rupee to depreciate further to make our products competitive in the foreign market. For example.: Indian Textile Exporter Earlier exchange rate: ₹88 = 1 US dollar Price of a t-shirt in India: ₹880 For a US buyer the cost will be: $10 After rupee depreciation New exchange rate: ₹ 91= 1 US dollar Same price of t-shirt: ₹880 For the US buyer, the cost will be: $9.67
- FPI outflow: another major reason for the current slide is foreign portfolio investors (FPI) pulling out the money both from equity as well as the debt market. Foreign portfolio investors are booking profits and reallocating to more attractive markets, draining liquidity and increasing demand for the dollar.
- High Gold Imports: there was a surge in gold imports in the October season amounting to nearly 200 per cent, this led to further widening of current account deficit.
Road Ahead
- Internationalisation of the rupee: India must focus on expanding the use of Indian rupee in international markets through cross border trade settlements, bilateral agreements and regional payment mechanisms, which will comprehensively the rupee’s global position.
- Special Vostro Rupee Accounts (SVRAs): scaling up SVRAs with more countries will reduce dollar dependence. Promote local currency settlements with major trading partners can help lower dollar demand.
- Boost export competitiveness: depreciation can help Indian exports remain competitive in global markets, especially in sectors such as textiles, pharmaceuticals, engineering goods and IT services.
- Strengthening forex: India has so far maintained sufficient foreign exchange reserves, it will have to maintain this to absorb external shocks and reassure investors during periods of global uncertainty.
- Inflationary measures and structural reforms: sustained economic growth and fiscal stability will be key to support the rupee over a long period Policymakers will need to balance currency weakness with inflation risks.
The other part of the story is yet to be recognized, there are several factors supporting the rupee at this point like, the weakening of the dollar, high bond yields in India, strong showing by Indian Inc in recent quarters and the resilience displayed by exports in November. One small trigger may reverse the slide.
