Source: TH
Context:
- The Indian Rupee (INR) has depreciated by ~4.3% against the US Dollar in 2025, emerging as the worst-performing major Asian currency this year.
- On 21 November 2025, INR touched a record low of ₹89.48 per USD, breaching levels previously defended by the Reserve Bank of India (RBI).
- Analysts warn the rupee could slide further to ₹90 per USD if global and domestic pressures persist.
Causes of Rupee Depreciation
Global Dollar Strength
- Strong US dollar amid rising US interest rates has reduced demand for emerging-market currencies.
- Safe-haven flows towards the USD have increased, weakening INR relative to other Asian currencies.
Trade & Current Account Pressures
- Export challenges due to high US tariffs and global trade uncertainties.
- Heavy import demand for oil, gold, and commodities increases the foreign exchange outflow, straining INR.
Capital Outflows
- Foreign Portfolio Investors (FPIs) have withdrawn funds due to global risk aversion.
- India’s external investment position and lower foreign reserves compared to some Asian peers reduce buffers against depreciation.
Comparative Underperformance
- While other Asian currencies held steady or appreciated, INR lagged behind due to trade deficits and structural vulnerabilities.
RBI’s Measures & Market Intervention
- RBI intervened in spot and NDF markets to stabilize the rupee, helping it recover to ≈ ₹89.2–89.3/USD temporarily.
- Interventions aim to arrest sharp depreciation while maintaining market confidence.
- Future interventions will depend on capital inflows, global dollar strength, and trade balances.
Implications of Depreciation
Risks
- Imported Inflation: Higher costs for oil, fuel, and raw materials.
- Interest Rate Pressure: Inflationary impact limits RBI’s flexibility on policy rates.
- External Debt Burden: Dollar-denominated debt repayments become costlier.
- Investor Confidence: Persistent depreciation may deter foreign investment.
Opportunities
- Export Competitiveness: Cheaper Indian goods for foreign buyers could boost sectors like IT services, manufacturing, and labor-intensive exports.
- Policy Incentives: Opportunity to implement export-supportive measures, diversify trade partners, and attract capital inflows.
Factors to Watch for Future Rupee Movement
- Global Dollar Trajectory: US Fed’s interest rate policy and dollar strength.
- External Trade Balance: Exports, imports, and trade agreements with major partners.
- Capital Flows: FPI/FDI inflows and outflows.
- RBI Policy & Reserves: Intervention strategies and reserve adequacy.
- Domestic Macroeconomic Fundamentals: Inflation, fiscal discipline, and growth outlook.
