Rupee vs Dollar: Why Currency Depreciation Matters to You

You must have recently come across a post saying “The rupee touched ₹95 this year”, tempted to scroll past it? Don’t. It affects your wallet more than you think it does: from oil prices to smartphones, flights, and an exchange degree abroad, everything. What factors affect the value of the rupee, and why does it matter to you? Let us look at the whole picture before arriving at a conclusion. 

From ₹4 to ₹95: Timeline of depreciation of the rupee in India since IndependenceIndia, since independence, has been experiencing a generally depreciating domestic currency against the US Dollar. The rupee started its life at roughly ₹4.79 to the dollar and slid to about ₹17.50 by 1990. In 1991, a balance of payments crisis pushed it past ₹24, and in 1993 India moved towards a market-determined exchange rate. Since then, the market has been the sole determinant of the rupee’s value, with occasional interventions by the Reserve Bank of India. In 2013, the US Federal Reserve hinted that it might slow down its bond purchases, which caused sheer panic among emerging markets, including India. This phenomenon, widely known as the ‘Taper Tantrum’, led to a 20% decline in the value of the rupee. This fall in the rupee was followed by a further fall of 10% in 2022. A loss of  2.9% in 2024 and 4.9% in 2025 further depreciated the rupee, leading to an all-time record low value of ₹88.82 in October 2025.

2026 has seen the highest stretch in years. It began slowly, with foreign investors selling Indian equities, and sped up after the West Asia crisis. By May 2026, the rupee had hit a record low of roughly ₹96.8–97. The rupee has been Asia’s weakest currency in both 2025 and 2026.

Factors affecting the valuation of currency in India:Conflicts in West Asia due to US-Israeli strikes on Iran and Tehran’s retaliatory attacks have begun disrupting global energy markets. This geopolitical crisis has led to a rise in oil prices across the whole world as Brent crude oil prices have surged up to $117.38 per barrel. (The Brent benchmark is a major global reference price for crude oil, used to price roughly 70% to 80% of the world's traded petroleum.) India pays for oil in US dollars, so when it imports more oil, importers need to buy more dollars by selling rupees to pay for the rising imports. This increases the demand for dollars and supply of rupees, making each dollar cost more against the Indian rupee. Simple concepts of demand and supply, right? Except, you’re the one making the actual payment here. Then, there is money walking right out of the door. In October, Foreign investors withdrew roughly ₹52,100 crore out of Indian equities, while rising US Treasury yields are making American assets look more attractive than emerging-market ones. Research claims that countries with bigger and more liquid markets face more capital outflows, as investors are free to leave easily in such markets. India’s market is big and comparatively liquid, which is a good sign, until everybody decides to leave at once.

The Reserve Bank of India’s Response to the falling Rupee and reading the REER:So, is the Reserve Bank of India sitting idle or is it taking measures to control the falling rupee? The RBI did two separate things: On the forex side, it limited how traders can rebook the cancelled forex derivatives. Forex derivatives are financial contracts whose values are dependent upon the exchange rate between two currencies. Businesses normally use  them for hedging by protecting themselves against sudden changes in the value of a currency. But, some traders use them for speculation in order to make profit from small or medium term price movements. However, the RBI’s current measure limits this kind of speculative buying. Moreover, the RBI has made seperate arrangements for oil companies to get their dollars outside the open market. Because these companies require dollars in huge quantities, buying them in the open market would push the dollar more; whereas, sourcing them from other sources stops this huge demand from putting extra pressure on the rupee. 

 On the monetary policy side, it moved towards a “calibrated tightening” stance. Calibrated tightening refers to a monetary policy stance where the central bank adopts tightened financial conditions through policy rate hikes. As part of this, it raised the repo rate by 25bps leading to a rise from 5.25% to  5.50% making borrowing costlier across the economy.

 However, none of this comes for free. In early October, after another weekly drop, the Forex reserves stood at $726.03 billion, and according to Nomura, future commitments of around $200 billion will shrink the RBI’s ‘effective cushion’, where effective cushion refers to the actual, usable volume of foreign exchange reserves available to defend the rupee against a sharp fall. 

However, here’s a twist. The real effective exchange rate (REER) measures the value of the rupee against the currencies of 40 trading partners, adjusted for inflation, where a reading below 100 suggests undervaluation. India's REER fell from 108.03 in November 2024 to 91.26 in June 2026. Governor Sanjay Malhotra has said that by this measure the rupee isn't overvalued and may even be undervalued. So a falling rupee doesn't automatically mean a "bad" rupee. Still, one HDFC Securities analyst warned that the RBI's current measures assure medium-term stability, not long-term structural support. Hence, be reassured, but don't relax completely.

Impact of the falling rupee on your wallet:When the rupee weakens, imports become costlier and in India, that’s a long list: fuels, electronics, foreign vacations and the MacBook you have been eyeing for so long. RBI research finds that the effect on consumer inflation is larger when the rupee falls than when it rises, and that smaller depreciation affects an average consumer more. However, the same research suggests that the pass-through to Indian inflation has been declining in recent years. So, it is suggested to expect gradual price changes rather than a sudden shock. Exporters, IT firms, and families receiving remittances can gain, but Micro, Small and Medium Enterprises, particularly those dependent on imported raw materials, as well as the energy sector, will suffer the shock at the beginning and till the end. 

Case study: a ₹ education loan for a $ degree Thinking of taking an education loan for a Master’s in Finance? Hold on, you won’t be paying the same amount that your elder cousin paid for his degree in Boston. Let us assume a degree abroad costs $40,000 in fees. At ₹83 to the dollar, that's ₹33.20 lakh. However, at ₹94.8, it's ₹37.92 lakh. Assuming a 10-year loan at 10% interest, the monthly EMI goes from about ₹43,900 to about ₹50,100. Same degree, same university, same lectures. But it costs roughly ₹4.7 lakh more, and the EMI is about ₹6,200 higher every month. This risk is greater for those families who took the loan when the rupee was stronger and pay fees later, because the constant tuition charges are in dollars while the variable price they actually pay is in rupees. Therefore, before taking a loan, ask your bank how much buffer it allows for currency movements, and consider asking for a sanction slightly above the quoted fees.

So, should you panic?No, but do pay attention. The rupee’s movement is partly about inflation, partly about ever-increasing oil prices, and partly about international money flowing towards dollars. The RBI is trying to ensure orderly movement in the foreign exchange market rather than a complete constraint at a particular value of the rupee, and according to its own REER measure, the rupee isn't overvalued. However, the rupee has depreciated 7.04% in calendar year 2026, with experts saying that the currency can depreciate further and touch the 100 per dollar mark if the current pace of decline continues. Therefore, if you are planning for a vacation abroad, plan your budget according to a weaker rupee rather than a stronger one and expect prices of fuel and electronics to rise. Depreciation is a sort of trade off which hurts an importer or anyone with dollar bills while benefits an exporter. It is not a verdict on India’s economy, but it is better to do your math before your next big decision. 

By Apurva Kumari