Historical performance of INR vs USD
The Indian rupee has witnessed a sustained decline over the past decade and has depreciated by almost 40%, from ₹62 in 2014 to the current low of over ₹90 per dollar. This year alone, the rupee weakened by more than 5%, continuing a long-term trend. In mid-2022, the INR hovered around ₹77.50, and by the end of 2023, it crossed ₹83.20, indicating structural vulnerabilities due to trade imbalances, capital flows and foreign exchange market dynamics.
Why is the INR so weakened?
Interestingly, the US dollar index has not risen significantly in recent months, suggesting that the rupee’s weakness is largely India-specific. High demand for dollars in India – due to import payments, corporate hedging and external debt repayments – has been a key driver. Global investors’ preference for safe-haven assets amid geopolitical uncertainties has further increased pressure on emerging market currencies such as the INR.
Strong global demand for the US dollar, driven by trade deals and investment flows, has widened India’s current account deficit and increased pressure on the rupee. Continued outflows of foreign portfolios in 2025 have further aggravated the situation as investors shift to developed markets that offer better returns and stability. Uncertainty over US monetary policy and increased global risk aversion have accelerated these withdrawals, reducing dollar inflows into India.
Despite stable to weak crude oil prices, the rupee continues to weaken due to structural factors and continued capital outflows. The Reserve Bank of India has attempted to stabilize the currency through spot and forward market interventions, selling dollars and tightening liquidity, but these measures have had limited impact as global risk sentiment and trade deficits dominate currency dynamics.
Meanwhile, the Indian economy remains resilient, with GDP growth expected to reach 6.5% for fiscal 2025, supported by strong domestic consumption and infrastructure spending. However, the currency’s performance depends on external balances and capital flows and not just on domestic growth. This means that a robust economy can still coexist with a weak rupee if exports exceed imports.
Impact on commodity prices
The sharp depreciation of the Indian rupee below ₹90 against the US dollar is expected to have a significant impact on India’s import-dependent economy. A weaker rupee makes imports more expensive even if global prices remain stable or soften, putting upward pressure on domestic commodity prices. For crude oil, which accounts for a substantial portion of India’s import bill, land costs will rise despite recent weakness in global benchmarks. This could translate into higher fuel prices and transportation costs, which would culminate in broader inflationary effects.
Similarly, gold and silver, where India is among the world’s top importers, are expected to become more expensive in rupee terms, potentially dampening consumer demand during the peak wedding season and affecting jewelery exports.
Edible oils such as palm and soya oil, which are crucial to India’s food supply chain, will also witness price hikes, putting pressure on household budgets and increasing food inflation rates.
Industrial metals such as copper and aluminum, essential to the manufacturing and infrastructure sectors, will face higher costs, putting pressure on margins for industries and potentially slowing investment activity. These developments collectively pose a challenge for policymakers, who must strike a delicate balance between supporting economic growth and containing inflationary pressures.
If the weakness persists
If the Indian rupee continues to weaken, the economy may face multiple challenges. Imported inflation is likely to increase as higher costs for fuel, raw materials and essential commodities feed through to domestic prices, putting pressure on household budgets and corporate margins. A widening current account deficit (CAD) is another concern as higher import bills for crude oil, gold and industrial inputs put pressure on the country’s external balance sheet. This scenario may also force the Reserve Bank of India to intervene more aggressively, deploy foreign exchange reserves and take measures to manage volatility in the foreign exchange market.
While India’s strong domestic drivers such as robust GDP growth and healthy foreign exchange reserves may cushion some of the impact, sectors that rely heavily on imports – such as energy, manufacturing and consumer goods – will feel the pressure. The interplay between these factors underlines the delicate task policymakers face in maintaining stability amid global and domestic headwinds.
(The authorHareesh V is Head of Commodity Research, Geojit Investments Limited. Views are own)
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