New Delhi: The Indian rupee’s trade-weighted valuation has slipped to its lowest level in more than a decade, as soaring crude oil prices and heavy foreign investor selling pile pressure on the currency. According to the Reserve Bank of India’s latest bulletin, the rupee’s 40-currency real effective exchange rate (REER) fell to 92.72 in March, well below its long-term average of 98.25. The sharp fall reflects the impact of the Iran war-driven oil rally, persistent dollar demand, and sustained foreign portfolio outflows.
The rupee has already weakened around 4.5% so far this year and touched a record low of 95.21 against the US dollar in late March.
Why The Rupee Is Under Pressure
Analysts say rising crude prices are forcing Indian importers to buy more dollars, while global risk aversion is triggering large equity outflows from Indian markets.
BofA Global Research said the rupee is likely to remain under pressure despite its cheap valuation. The brokerage noted that dollar demand could rise “from ramp-up in oil imports to secure supplies and by sizeable equity outflows amid heightened risk aversion.”
The March reading marks a steep 15-point decline from late-2024 highs, making it one of the sharpest real depreciations in recent years.
A weaker REER can help Indian exports become more competitive, but it also raises the cost of imports, especially crude oil.
Opportunity Or Warning Sign?
The rupee’s undervaluation looks even sharper on a narrower six-currency basis. That gauge dropped to 89.61 in March, the lowest since records began in April 2015.
India’s six biggest trading partners last fiscal were the United States, China, the United Arab Emirates, Russia, Saudi Arabia, and Singapore.
Despite near-term risks, some policymakers see opportunity. “For long-term investors, the rupee’s current valuation provides an attractive entry point,” Chief Economic Adviser V. Anantha Nageswaran told Bloomberg News.
The RBI has assumed an average dollar-rupee exchange rate of 94 for FY27. However, central bank estimates suggest that a further 5% depreciation could add about 40 basis points to inflation and shave 25 basis points off economic growth.
