INR vs USD: The Indian Rupee continues to look weak in this financial year. It has fallen by about 5% against the dollar and has remained above 90 per dollar for the last few days. A recent report by HDFC Tru states that the rupee is under pressure due to many external and domestic reasons.
Major reasons for weakness
According to the report, high trade tariffs imposed on India by the US, India’s widening current account deficit, capital outflow due to high interest rates abroad, and heavy dependence on imports of essential goods like oil and electronics are all putting pressure on the rupee. The rupee has also weakened due to continuous selling by foreign investors.
In the last 50 years, the rupee has seen an average annual decline of 4-5%. However, this time the decline is more than in recent years. While the rupee was considered overvalued in 2024, it has become slightly undervalued in 2025. This is indicated by REER (Real Effective Exchange Rate) falling below 100. This has happened only for the fourth time in the last 10 years.
advantages and disadvantages
Low value of rupee can increase competition for Indian exporters, because goods imported from outside India will look cheaper. However, imports will become costlier which may increase daily expenses like petrol and diesel, foreign travel and electronics. This may increase pressure on inflation.
What is the role of RBI?
The IMF report says that India is following a “crawl-like arrangement”. This means that RBI allows the rupee to move in a controlled range and prevents sharp fluctuations. This arrangement allows the rupee to adjust gradually, usually slightly downwards.
What will happen in future?
The report suggests that the falling rupee can be beneficial for foreign investors in the long run, as their returns increase when converted into rupees. However, the pressure may continue soon. Global financial situation may keep the rupee weak due to expensive imports and trade related challenges. According to the report, the current undervaluation of the rupee will not last long, so the market will keep a close eye on its trend in the coming months.
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