It has underperformed peers amid volatile capital flows and uneven forex support.
At the start of December 2025, the Indian rupee breached the Rs 90-per-dollar mark -- an important psychological threshold -- after beginning the year at nearly Rs 85.6.
The nominal exchange rate data shows a steady weakening through 2024 (2.2 per cent against the dollar), followed by a sharper depreciation (4.4) in 2025. (Chart 1)
Movements in the nominal and real effective exchange rate indices suggest a partial correction of overvaluation.
From being significantly overvalued in early 2024, the rupee in real terms has become only marginally less overvalued by late 2025. (Chart 2)
External sector data underlines the role of net dollar flows.
While the current account alternates between surplus and deficit, capital and financial flows have turned uneven with sharp reversals in forex flows in recent quarters, weakening support for the rupee. (Chart 3)
A global comparison shows that the rupee has underperformed most Asian and emerging-market peers against the dollar in 2025, pointing to pressures beyond a generalised strong-dollar environment. (Chart 4)
The weakness is not confined to the dollar alone.
The rupee has also depreciated sharply against several emerging-market currencies, indicating broad-based stress rather than a bilateral issue with the US. (Chart 5)
Forex reserves offer 11-12 months' import cover vis-a-vis 2-3 weeks in the 1991 BoP crisis. (Chart 6)
Feature Presentation: Aslam Hunani/Rediff
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