New Delhi, India – The Indian Rupee has reached its weakest valuation in over a decade, a significant development attributed primarily to escalating geopolitical tensions in the Middle East and substantial outflows of foreign portfolio investment (FPI). This downturn underscores the profound impact of global instability on emerging markets.
Rupee’s Steep Decline: A Closer Look
The Rupee’s journey has been challenging, experiencing a nearly 5% decline in 2025 and continuing its weakening trend, even touching new record lows this year. Alarmingly, this depreciation isn’t confined to its performance against the US dollar; the Rupee is also losing ground against a basket of other major currencies, signaling a broader vulnerability.
Experts point to soaring crude oil prices, fueled by ongoing Middle East conflicts, as a major catalyst. Coupled with relentless selling by foreign investors, these factors have placed immense strain on the Indian currency.
REER Data Reveals Deeper Weakness
Data from the Reserve Bank of India’s latest bulletin paints a stark picture. The currency’s 40-currency real effective exchange rate (REER), a crucial measure adjusted for inflation across countries, has plummeted to 92.72. This figure stands notably below its long-term average of 98.25, indicating that the Rupee is significantly undervalued compared to its historical levels.
Reuters-cited analysts suggest that low domestic inflation has also contributed to the REER’s recent decline, alongside the Rupee’s approximately 4.5% fall this year. In March, the currency had already hit a record low of 95.21 against the greenback.
Challenges Ahead, Opportunities for Long-Term Investors
Despite the Rupee’s current undervaluation, a swift recovery appears unlikely. Analysts at BofA Global Research anticipate continued pressure due to robust demand for dollars, driven by higher oil imports and persistent foreign investor selling amidst uncertain global market conditions.
The latest REER figure, approximately 15 points lower than late 2024 levels, marks one of the sharpest drops in recent years. While a weaker REER can make Indian exports more competitive and cheaper, it simultaneously escalates the cost of imports. Interestingly, it could also facilitate entry for new foreign investors, even as it diminishes the converted value of existing foreign currency investments.
Further emphasizing the severity, the Rupee’s six-currency REER fell to 89.61 in March, reaching its lowest point since data collection began in April 2015, significantly below its average of nearly 100, as reported by Reuters. This decline is even more pronounced when measured against India’s six largest trading partners in 2024–25: the United States, China, the United Arab Emirates, Russia, Saudi Arabia, and Singapore.
“For long-term investors, the rupee’s current valuation provides an attractive entry point,” stated V Anantha Nageswaran, India’s chief economic adviser, to Bloomberg News on Thursday. This perspective highlights potential opportunities amidst the current market dynamics.
The RBI projects an exchange rate of 94 against the US dollar for 2026–27. Their estimates indicate that a 5% deviation from this level could lead to an approximate 40 basis point increase in inflation and a 25 basis point rise in growth, illustrating the delicate balance of currency valuation on the broader economy.
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