The Indian rupee has been losing value recently, and this has caught the attention of investors and policymakers. However, this is not just an issue for India; it is happening in many countries. Most currencies are weakening against the US dollar because of economic challenges and tighter dollar supply around the world.
For India, a weaker rupee is not expected to have a big impact on trade or the economy. One reason is that global demand for goods is currently low, especially from countries like China. This low demand means that Indian exporters may not benefit much from the weaker rupee, even though it usually makes exports more competitive.
RBI has been focusing on managing liquidity in the economy instead of directly stepping in to support the rupee. When the RBI intervenes too much to strengthen the rupee, it can reduce the money available in the system and hurt economic growth. By choosing not to intervene heavily, the RBI is trying to ensure that there is enough money in the economy to support growth.
India’s foreign exchange reserves, which act as a buffer during currency fluctuations, have also gone down. Between September 2024 and January 2025, reserves dropped by $70 billion and now stand at $704.6 billion. Part of this decline, about $23.4 billion, was due to the RBI’s efforts to reduce volatility in the forex market. While this reduction in reserves shows some pressure on India’s external finances, the reserves are still large enough to handle short-term challenges.
The depreciation of the rupee has a mixed effect on inflation. When the rupee loses value, imported goods become more expensive, which can push up inflation. The RBI estimates that a 5% fall in the rupee increases inflation by 35 basis points. However, falling global commodity prices, especially in energy, have helped reduce this impact. This has kept inflation from becoming a major concern despite the weaker rupee.
When compared to other Asian currencies, the rupee has performed relatively better. For example, during the same period, the Indonesian Rupiah and Thai Baht also weakened, with their declines close to the rupee’s 0.70% depreciation. This shows that the rupee’s movement is part of a larger trend in the region and not unique to India.
A weaker rupee is often seen as a way to help exports, as it makes Indian goods cheaper for other countries to buy. However, because global demand is low, the benefits of depreciation are limited. This is why economists believe that focusing too much on supporting the rupee could harm the domestic economy if it takes away money needed for growth.
The overall situation for the rupee and India’s economy depends heavily on global factors. Concerns about a slowdown in the world economy and tighter availability of US dollars are making things difficult for emerging markets like India. Policymakers are now working to balance these challenges while ensuring that the domestic economy remains stable and continues to grow. It is a delicate task, as any misstep could create more issues for the country’s economic outlook.