New Delhi: The depreciation of the Indian rupee during the current financial year 2025-26 has been influenced by the increase in trade deficit and likely prospects arising from the ongoing developments in India’s trade agreement with the US, amid relatively weak support from the capital account, the Parliament was informed this week.
The Indian rupee broke a historic barrier by crossing 90 against the US dollar this month.
"Various domestic and global factors influence the exchange rate of the Indian rupee, such as the movement of the Dollar Index, trend in capital flows, level of interest rates, movement in crude prices and current account deficit, etc," Minister of State for Finance Pankaj Chaudhary told the Rajya Sabha in a written reply to a question.
However, he noted that the depreciation of currency is likely to enhance export competitiveness, which, in turn, impacts the economy positively.
"On the other hand, depreciation may raise the prices of imported goods. However, the overall impact of exchange rate depreciation on domestic prices depends on the extent of the pass-through of international commodity prices to the domestic market," he said.
Furthermore, the imports in the economy also depend on various factors, including the demand and supply of commodities in the international market, the kind of tradeable (essential or luxury items), freight costs, availability of substitute goods, etc. Thus, the impact of the movement of the exchange rate on the import cost and hence on domestic inflation and on the economy in general cannot be isolated.
The value of the rupee is market-determined, with no target or specific level or band, Chaudhary said.
The Reserve Bank of India (RBI) regularly monitors the foreign exchange market and intervenes in situations of excess volatility.
Indian rupee likely to bounce back stronglyNew Delhi: Geopolitical uncertainties driven by the delay in the India-US trade deal have been the single-most important reasons for the rupee sliding against the US dollar, an SBI Research report said, adding that the rupee is likely to bounce back strongly in the second half of the next fiscal. “While the geopolitical risk index has moderated since April 2025, the current average value of the index for April-October 2025 is much greater than its decadal average, which indicates how much pressure global uncertainties are exerting on INR," State Bank of India's (SBI) Group Chief Economic Advisor, Dr Soumya Kanti Ghosh, said. Dr Ghosh further stated that consistent with their empirical analysis, "the rupee is currently in a depreciating regime and is likely to exit it". After breaching the psychologically important mark of 90 per US dollar, the rupee crossed the 91-level. However, the rupee staged a sharp recovery, trading as strong as 90.25 during the day, as the cooling of crude prices also contributed to improved sentiment. According to the SBI report, the data also indicates that the current fall is the quickest (in terms of number of days) of the rupee, scaled to 5 per USD. In less than a year, the rupee has slid from 85 to 90 per dollar. |
