Rupee Touches New Low

Context:

The Indian Rupee (INR) has recently slipped past the ₹90 per US dollar threshold for the first time, marking a historic low. This decline reflects a combination of global financial pressures, domestic macroeconomic vulnerabilities, and shifting capital flows.

Background:

- The Rupee’s depreciation has been steady through the year, driven by persistent dollar strength, elevated crude oil prices, geopolitical uncertainty, and weakening foreign portfolio inflows.
- The ₹90 level is considered a critical psychological and market-sensitive mark, triggering stop-loss orders, hedging pressures, and speculative activity.

Key Drivers behind the Rupee’s Depreciation

Category	Factor	Explanation
Global Factors	Strong US Dollar	The US Federal Reserve’s tight monetary policy and global safe-haven demand strengthened the USD.
	Geopolitical Tensions	Global conflicts and supply-chain disruptions pushed investors toward dollar-denominated assets.
	Global Commodity Price Pressures	Rising crude oil, food, and metal prices increased India’s import bill, putting pressure on the rupee.
Domestic Factors	High Import Dependence	India imports 85% of its crude oil, making the currency sensitive to global oil price movements.
	Current Account Pressure	A widened CAD due to costly imports weakened the rupee.
	Foreign Capital Outflows	FIIs pulled out funds from equity and debt markets amid global uncertainty.
	Limited RBI Intervention	RBI allowed the rupee to adjust naturally, intervening only to curb extreme volatility rather than defend a specific level.

Economic Implications of Rupee Depreciation

Impact Area	Sub-components	Details
Impact on Inflation	Petroleum products, edible oils, electronics, fertilizers	Costlier imports lead to imported inflation, increasing domestic price levels.
Impact on External Sector	Imports	Higher import costs strain consumers and industries.
	Exports	Exporters temporarily benefit as USD earnings rise in rupee terms, but gains reduce if input materials are imported.
Impact on Businesses	Manufacturing, MSMEs	Industries with high import content face rising production costs; MSMEs struggle with forex volatility.
Impact on Students & Travellers	Education, travel, remittances	Foreign education, travel, and money transfers become more expensive for Indian families.
Market Sentiment	FDI, FPI, borrowing costs	Persistent depreciation may deter investors and raise India’s external borrowing costs.

Policy Measures Available:

Monetary Policy Tools

- - Calibrated interest rate adjustments
  - Liquidity management through market operations

RBI’s Forex Management

- - Selling foreign exchange reserves to reduce volatility
  - Allowing rupee flexibility to avoid reserve depletion

Government Measures

- - Incentivising FDI inflows
  - Promoting export-oriented sectors
  - Reducing import dependence (energy transition, electronic manufacturing initiatives)

Conclusion:

The Indian Rupee crossing the ₹90 mark against the US dollar is a turning point for India’s external sector and economic management. While currency depreciation is not inherently negative—often helping exporters—the current fall reflects deeper structural vulnerabilities.