The Indian rupee has depreciated by almost 5% in 2025, continuing its downward trajectory and hitting a new record low this year. The currency is not only weakening against the US dollar but also against other global currencies.
Rupee at Its Weakest in Over a Decade
The rupee has dropped to its weakest level in more than a decade compared to its global peers. This decline comes as crude oil prices soar amid Middle East tensions and heavy foreign investor outflows continue to strain the currency.
Data from the Reserve Bank of India's latest bulletin shows that the currency's 40-currency real effective exchange rate (REER) has fallen to 92.72. This measure, which adjusts for inflation across countries, is now well below its long-term average of 98.25, indicating that the rupee is significantly undervalued.
Factors Behind the Decline
Analysts cited by Reuters said that low inflation in India has also pulled the REER down in recent months, along with the rupee's fall of about 4.5% so far this year. In March, the currency hit a record low of 95.21 against the greenback.
Even with the currency being undervalued, a quick recovery is unlikely, the agency reported. Analysts at BofA Global Research said the rupee may remain under pressure due to strong demand for dollars, driven by higher oil imports and continued selling by foreign investors during uncertain market conditions.
The latest REER figure is about 15 points lower than its levels in late 2024, marking one of the sharpest drops in recent years.
Impact on Trade and Investment
A weaker REER makes Indian exports cheaper and more competitive but raises the cost of imports. It can also make it easier for new foreign investors to enter, even though it reduces the value of existing investments when converted into foreign currency.
Consider this: the rupee's six-currency REER fell to 89.61 in March, the lowest level since data began in April 2015 and well below its average of nearly 100, Reuters reported.
Comparison with Key Trading Partners
The decline looks even sharper when measured against six key trading partners. India's six biggest trading partners in 2024–25 were the United States, China, the United Arab Emirates, Russia, Saudi Arabia, and Singapore, according to trade ministry data.
Expert Views and Projections
"For long-term investors, the rupee's current valuation provides an attractive entry point," V Anantha Nageswaran, India's chief economic adviser, told Bloomberg News on Thursday.
The RBI has assumed an exchange rate of 94 against the US dollar for 2026–27. Its estimates show that a 5% deviation from this level could increase inflation by about 40 basis points and raise growth by around 25 basis points.
