Economic Survey 2026: Rupee weakness driven by capital outflows, not macro instability, says CEA Nageswaran
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Chief Economic Adviser V. Anantha Nageswaran on Thursday said the recent weakness of the rupee against the dollar is broadly in line with trends seen across emerging market currencies and does not reflect any underlying macroeconomic instability.
The weakness in the rupee is primarily the result of capital outflows driven by higher global interest rates, Nageswaran said while speaking at the Economic Survey press briefing.
He added that similar pressures are being faced by other emerging market economies amid heightened geopolitical risks and tighter global financial conditions.
Rupee underperformed global peers
His comments followed the tabling of the Economic Survey 2026 in Parliament. The survey noted that the rupee lagged its peers in 2025. Nageswaran attributed the depreciation to tighter global financial conditions that curtailed capital inflows and put pressure on currency stability.
According to the Economic Survey, the rupee depreciated by around 5.4% against the dollar between April 1, 2025, and January 15, 2026, making it one of the most depreciated currencies during the period, alongside the Japanese yen.
January 2026
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Other Asian currencies such as the Philippine peso and the Indonesian rupiah saw relatively lower depreciation, while currencies of Australia, Brazil, and South Africa appreciated, supported by favourable terms-of-trade movements, it said.
Rupee hits all-time low of 92 against the dollar
Meanwhile, the rupee hit a fresh all-time low of ₹92 against the dollar in intraday trade Thursday. This follows a period of extreme volatility where the currency has repeatedly tested historic lows throughout January due to sustained foreign capital outflows and a prolonged stalemate over a U.S. trade deal that has sapped investor confidence. Heightened geopolitical tensions across global markets have only added to the strain, pushing the currency deeper into uncharted territory.
The survey noted that India’s dependence on foreign capital inflows to finance its current account gap makes the rupee vulnerable during periods of global tightening. While India runs a merchandise trade deficit, its surplus in services exports and remittances is insufficient to fully offset the gap, making capital inflows critical for balance of payments stability.
At the same time, the Economic Survey said the rupee’s valuation “does not fully reflect India’s strong economic fundamentals”. “The rupee, therefore, is punching below its weight. Of course, it does not hurt to have an undervalued rupee in these times, as it offsets to some extent the impact of higher American tariffs on Indian goods, and there is no threat of higher inflation from higher-priced crude oil imports now,” the survey highlighted.
It added that a relatively undervalued rupee could provide some cushion against higher U.S. tariffs on Indian exports and poses little inflationary risk in the current environment, given stable crude oil prices.
The survey also noted that episodes of sharper rupee depreciation have typically coincided with periods of elevated current account deficit, such as in FY09, FY13, FY19, and FY23. However, it pointed out that strong and stable foreign investment inflows have, in some years, offset trade deficits and supported the currency, underscoring the role of capital flow dynamics in exchange-rate movements.