The recent movement of the rupee past 90 against the dollar has created some anxiety, but current macroeconomic conditions suggest this depreciation is neither unusual nor harmful. With inflation low and global oil prices soft, the currency’s adjustment is unlikely to create major domestic disruption. At this stage, a weaker rupee is functioning as a macro stabiliser.
Over the past year, the rupee has depreciated not only against the dollar but also against major currencies such as the euro, pound and yuan. NEER and REER indices show a broad-based 6.8 percent decline from January to October 2025, even before November’s sharper movement. This reflects India’s external position rather than a policy shift. The RBI has historically avoided defending specific currency levels; it focuses on reducing volatility, not targeting a fixed rate.
Why a weaker rupee fits current fundamentals
India’s external account has softened. The current account deficit is expected to rise from 0.6 percent of GDP in FY25 to 1.2–1.3 percent in FY26 due to slower exports and higher gold imports. At the same time, both FDI and FPI inflows have moderated. Allowing the currency to adjust naturally reduces pressure on monetary and fiscal policy and avoids disruptive steps such as steep rate hikes or capital restrictions.
Rupee as a tariff buffer
Depreciation is also helping offset the export disadvantage created by high US tariffs. India faces an average tariff of 35 percent compared to 19 percent for Thailand. But over the past year, the Thai baht has appreciated about 13 percent against the rupee, narrowing this gap without any additional policy action. This exchange-rate adjustment supports Indian exporters at a time when operational fixes may offer diminishing returns.
Why inflation risk remains contained
A weaker rupee usually raises import-led inflation, especially energy prices. However, current conditions are favourable. CPI inflation is around 0.25 percent, WPI inflation is negative and crude oil is near USD 60 per barrel. With inflation pressures muted, this is a safe window for currency adjustment without triggering rate hikes or financial stress.
View for clients
Given present macro conditions, rupee depreciation is acting as a natural absorber of external pressures rather than a sign of instability. Export competitiveness improves, policy space widens and inflation risks remain limited. For now, the adjustment appears timely and economically favourable.