Rupee Depreciation and Economic Context
Between late November 2024 and now, the rupee depreciated about 7%, sliding from roughly ₹83.4 a dollar to about ₹89.2.
Historical Context
- In 2018, the rupee slid 11%-12% against the dollar.
- Political and trade backdrops in 2024-2025 echo the 2018 period.
- Global factors included:
- Dollar Strength.
- Rising U.S. Interest Rates.
- Trade Tensions.
RBI's Actions
- The RBI used its first longer-term currency-swap as a systemic liquidity check in 2018.
- Completed a $5 billion three-year dollar/rupee swap in 2019.
- In February 2025, conducted a $10 billion dollar/rupee buy-sell swap auction.
Such swaps aim to supply liquidity, shore up forex reserves, and prevent disorderly currency depreciation.
Current Economic Pressures
- External pressures include a widening current-account deficit.
- Higher imports of bullion as a hedge in uncertain times.
- Exporters struggle to maintain competitiveness amid high U.S. trade tariffs.
The RBI’s mandate under the floating-but-managed regime is to ‘smoothen volatility’ rather than fix the exchange rate.
Forex and Inflation Overview
- Between November last year and now, the RBI sold a net of roughly $50 billion in forex to stabilize the rupee.
- India’s foreign exchange reserves are comfortable — close to $693 billion.
- Retail inflation has slumped, with headline CPI inflation at just 0.25% in October 2025.
Monetary and Strategic Considerations
- Room for cautious optimism as RBI can tolerate modest currency depreciation.
- Crude oil accounts for over a fifth of total imports in FY25, affecting inflation.
The Centre must address heavy dependence on oil with strategic steps like faster transport electrification and a well thought-out trade policy.
Trade Policy Concerns
- India has focused on bilateral trade deals, which have tilted the trade balance against it.
- Agreements with Japan, the UAE, and ASEAN have not diversified trade routes as hoped.
