The rupee has been steadily losing steam over the past two decades. Mirroring global and domestic economic upheavals, the Indian currency slipped from 43.74 versus the dollar on September 5, 2005, to 88.32 by September 5, 2025, marking a 102% depreciation over 20 years.

The rupee was at its worst after the global financial crisis of 2008, when it breached the 48-mark, and again in 2013, when it surpassed 66 against the dollar following multiple factors such as the Eurozone sovereign debt crisis and the U.S. Federal Reserve’s scaling back of its bond-buying programme. The fall continued in the subsequent years, breaching 70 and 84 levels in 2018 and 2023, respectively. However, the slide has been sharper in the past year—the rupee was at 83.98 on September 5, 2024.

The rupee has been reeling under the combined impact of global shocks and India’s structural vulnerabilities. India’s heavy dependence on imported oil, persistent trade deficits, and reliance on volatile capital flows and tariff shocks have not aided it either. “The rupee depreciation has generally been caused by a fundamental imbalance in the balance of payments. To begin with, most of the depreciation episodes have been associated with a high current account deficit caused mainly by a high trade deficit. Second, the capital account has been under strain with FPI flows making a big difference, especially daily. These two factors have contributed to the rupee's decline,” says Madan Sabnavis, chief economist at Bank of Baroda.

On the trade side, the single most important factor has been the oil bill, he says. “The oil bill has inflated whenever the price of oil goes up. There have been phases when FDI and ECBs have supported the rupee, but this has followed specific time frames,” he adds.

The undesirable run 

Despite a steady downfall over the past two decades, there were specific instances when the rupee witnessed a drastic decline. The first among such setbacks came in the form of the global financial crisis of 2008–09. The collapse of Lehman Brothers triggered an international flight to safety, resulting in a sudden halt to capital inflows just as India’s current account deficit was widening. Safe-haven demand for the dollar pushed the rupee past 50, despite the RBI’s efforts to stabilise the market.

Then, between 2011 and 2013, the Eurozone sovereign debt crisis coincided with India’s widening fiscal and current account deficits. “The strain intensified in 2013, when the U.S. Federal Reserve signalled tapering of its quantitative easing programme,” says Amit Pabari, MD and CEO of CrForex. “The resulting outflow of capital from emerging markets drove the rupee beyond 60, exposing India’s dependence on external liquidity.”

The next major stress came in 2018, when a sharp rise in crude oil prices coincided with aggressive U.S. rate hikes and escalating trade tensions between the U.S. and China. India’s import bill ballooned, capital flows turned volatile, and the rupee fell past 74, reaffirming its structural sensitivity to oil and global yield cycles.

The pandemic shock of 2020 once again underscored the rupee’s vulnerability to sudden global disruptions. The freezing of worldwide trade and the rush for dollar liquidity weakened the currency towards 76, before coordinated monetary easing and RBI interventions limited the damage.

The 2022–23 period brought another prolonged depreciation cycle. Russia’s invasion of Ukraine sent energy and commodity prices soaring, while aggressive Fed tightening drew capital into U.S. assets. The rupee crossed 83, hitting record lows as geopolitics, imported inflation, and monetary divergence converged.

Across these episodes, the rupee’s movements reflected a combination of structural domestic weaknesses and recurring global forces. “Persistent trade deficits, driven by heavy reliance on oil and electronics imports, have kept the rupee under pressure. Capital flows have acted as stabilisers and destabilisers, cushioning the currency in periods of optimism but reversing sharply during global risk aversion. RBI interventions, inflation targeting, and gradual reforms have provided some stability but have not been sufficient to neutralise the impact of repeated external shocks,” explains Pabari.

What's different in 2025?

The current situation stands apart from the previous cycles. “What makes it unusual is that the rupee is sliding even though the dollar itself has weakened—the DXY has fallen back near 97–98, yet the rupee trades around 88.3. Peers such as the Mexican peso and Brazilian real have appreciated in this environment, highlighting India’s underperformance,” says Pabari.

This divergence is largely the result of tariff shocks. Washington’s punitive tariffs against New Delhi’s continued Russian oil purchases—a vital source of India’s energy supply—have sharply worsened the external balance.

Sabnavis says, “The post-Ukraine scenario of falling rupee was also driven by high rates in the U.S., which strengthened the dollar, causing all currencies to depreciate. In all these situations, the reaction of the RBI has been critical because the pace of fall has been managed by the sale of dollars in either the spot or the forward market.”

The current round is more sentiment-driven. “Based on fundamentals, the rupee should be in the 87.50-88 range. This is due to the dollar weakening in the global market. However, the market has panicked due to the tariff issue, which is keeping the rupee down. In the absence of any firm RBI action, 88 could simply be the new benchmark, as depreciation is considered a palliative for exports, which are expected to decline due to the U.S. tariff order,” he adds.

Besides, the move has triggered heavy foreign portfolio outflows, as export-driven industries grapple with tariff-induced margin pressures and investors grow wary of weaker earnings prospects. Unlike previous depreciation episodes, which primarily mirrored global dollar strength, the present phase is being shaped far more by India-specific vulnerabilities.

Jyoti Prakash, panaging partner, equity and PMS at AlphaaMoney, says, "RBI computes REER (Real Effective Exchange Rate) and NEER (Nominal Effective Exchange Rate) to show the relative valuation of INR. The latest readings of REER and NEER show that the rupee is in fact undervalued against all major currencies like the pound, yen, the Euro, and the dollar."

"Overall, we think that most negatives are priced in at 88/USD. Hence, we don’t see a sharp selloff of INR. In the event of signing a trade deal between the U.S. and India, INR could rally to about 87,” he says.