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4 Dec 2025·Source: The Indian Express
3 min
EconomyEXPLAINED

Indian Rupee's Slide Past 90 Against Dollar: Causes and Economic Impact

Explaining the factors behind the Indian Rupee's depreciation against the US Dollar, including global and domestic economic pressures.

Indian Rupee's Slide Past 90 Against Dollar: Causes and Economic Impact

Photo by Amr Taha™

पृष्ठभूमि संदर्भ

The exchange rate between the Rupee and Dollar is influenced by a complex interplay of global and domestic economic factors. Historically, India has managed its currency through a "managed float" system, where the RBI intervenes to smooth out excessive volatility.

वर्तमान प्रासंगिकता

The Rupee's recent slide past a significant psychological barrier (90) highlights ongoing economic pressures, including global interest rate hikes by the US Federal Reserve, geopolitical events impacting oil prices, and India's own trade dynamics.

मुख्य बातें

  • •Understand the difference between currency depreciation and devaluation.
  • •Identify key global factors (US Fed policy, crude oil) and domestic factors (trade deficit, FPI) affecting the Rupee.
  • •Recognize the RBI's role in managing exchange rate volatility.
  • •Analyze the impact of Rupee depreciation on imports, exports, and inflation.

विभिन्न दृष्टिकोण

  • •Some argue that a weaker Rupee boosts exports, aiding economic growth.
  • •Others emphasize the inflationary pressure from costlier imports and the burden on foreign debt repayment.

संबंधित अवधारणाएं

InflationCurrent Account Deficit (CAD)Fiscal DeficitForeign Exchange ReservesMonetary Policy Committee (MPC)

The Indian Rupee has recently depreciated past the 90-mark against the US Dollar, a significant development with wide-ranging economic implications. This "Explained" article breaks down the key drivers behind this slide. Globally, a strong US Dollar, fueled by higher interest rates set by the US Federal Reserve, makes dollar-denominated assets more attractive, leading to capital outflows from emerging markets like India.

Elevated crude oil prices also contribute, as India is a major oil importer, increasing its import bill. Domestically, a widening trade deficit, where imports exceed exports, and outflows of Foreign Portfolio Investment (FPI) further weaken the Rupee. The Reserve Bank of India (RBI) actively intervenes to manage volatility, but the underlying pressures remain.

A depreciating Rupee makes imports more expensive, potentially fueling inflation, while making exports cheaper and more competitive.

मुख्य तथ्य

1.

Indian Rupee depreciated past 90 against US Dollar

2.

Global factors: strong US Dollar, higher US interest rates, elevated crude oil prices

3.

Domestic factors: widening trade deficit, Foreign Portfolio Investment (FPI) outflows

4.

RBI intervenes to manage volatility

5.

Depreciation makes imports costlier and exports cheaper

6.

Impacts inflation and current account deficit

UPSC परीक्षा के दृष्टिकोण

1.

Impact of global monetary policy on emerging economies

2.

Balance of Payments components and their influence on exchange rates

3.

Role and tools of the Reserve Bank of India in managing exchange rates

4.

Inflationary pressures stemming from currency depreciation

5.

Trade dynamics: impact on exports and imports

6.

Capital flows: FPI vs. FDI and their stability implications

दृश्य सामग्री

Key Drivers of Rupee Depreciation: A Snapshot

This dashboard summarizes the primary global and domestic factors contributing to the Indian Rupee's depreciation, providing quick facts for understanding the underlying causes.

US Federal Funds Rate
5.25% - 5.50%↑ ~500 bps

Aggressive rate hikes by the US Fed to combat inflation have strengthened the US Dollar, making dollar-denominated assets more attractive and leading to capital outflows from emerging markets like India.

Crude Oil Prices (Brent)
~ $90/barrel↑ ~20% (YTD)

India is a major net importer of crude oil. Higher global oil prices significantly increase India's import bill, leading to higher demand for US Dollars and putting pressure on the Rupee.

FPI Net Outflows (Recent Period)
~ $20-30 Billion↓ Significant

Foreign Portfolio Investors withdrawing funds from Indian equity and debt markets due to global risk aversion and higher returns in the US, directly reducing the supply of USD in India.

Merchandise Trade Deficit
~ $25 Billion/month↑ Widening

Imports exceeding exports by a large margin creates a persistent demand for foreign currency, contributing to the Rupee's weakness. Driven by oil, gold, and electronics imports.

बहुविकल्पीय प्रश्न (MCQ)

1. Consider the following statements regarding the depreciation of the Indian Rupee: 1. A sustained increase in interest rates by the US Federal Reserve typically leads to capital outflows from emerging economies like India. 2. Elevated global crude oil prices tend to worsen India's current account deficit, putting downward pressure on the Rupee. 3. The Reserve Bank of India's intervention to curb Rupee volatility primarily involves selling foreign currency reserves in the open market. Which of the statements given above is/are correct?

उत्तर देखें

सही उत्तर: D

Statement 1 is correct: Higher US interest rates make dollar-denominated assets more attractive, drawing capital away from emerging markets, thus weakening their currencies. Statement 2 is correct: India is a major oil importer. Higher crude oil prices increase the import bill, widening the trade deficit and consequently the current account deficit, which puts pressure on the Rupee. Statement 3 is correct: When the Rupee depreciates excessively, the RBI often intervenes by selling US Dollars (from its foreign exchange reserves) in the market to absorb Rupee liquidity and strengthen the Rupee. Conversely, it buys dollars to prevent appreciation.

2. In the context of a significant depreciation of the Indian Rupee against the US Dollar, which of the following is NOT a likely immediate consequence for the Indian economy?

उत्तर देखें

सही उत्तर: C

A) is correct: Depreciation makes imports more expensive as more Rupees are needed to buy the same amount of foreign currency. B) is correct: Indian goods become cheaper for foreign buyers, potentially boosting exports. D) is correct: Higher import costs for raw materials and components can lead to 'imported inflation'. C) is incorrect: A depreciating Rupee *increases* the burden of external debt denominated in foreign currency. Indian entities (government or corporates) would need more Rupees to repay the same amount of foreign currency debt.

3. Match List-I (Economic Factor) with List-II (Impact on Indian Rupee) and select the correct answer using the code given below: List-I (Economic Factor) I. Increase in Foreign Direct Investment (FDI) inflows II. Widening of India's trade deficit III. Higher interest rates by the Reserve Bank of India (RBI) IV. Sustained outflow of Foreign Portfolio Investment (FPI) List-II (Impact on Indian Rupee) P. Tends to strengthen the Rupee Q. Tends to weaken the Rupee R. Mixed impact, depends on other factors S. Primarily affects domestic borrowing costs Code: I II III IV

उत्तर देखें

सही उत्तर: A

I. Increase in FDI inflows (P): FDI brings foreign currency into the country, increasing the supply of foreign currency relative to the Rupee, thus strengthening the Rupee. II. Widening of India's trade deficit (Q): A larger trade deficit means more foreign currency is needed to pay for imports than earned from exports, increasing demand for foreign currency and weakening the Rupee. III. Higher interest rates by the RBI (P): Higher domestic interest rates can attract foreign capital (FPI), as investors seek better returns, thereby increasing demand for the Rupee and strengthening it. IV. Sustained outflow of FPI (Q): FPI outflows mean foreign investors are selling Rupee-denominated assets and converting Rupees to foreign currency, increasing demand for foreign currency and weakening the Rupee.

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