Rupee Depreciation
Causes, Channels, and Consequences
The rupee's exchange rate is determined by supply and demand for dollars in the forex market. Supply of dollars comes from: exports of goods and services, FDI inflows, FPI inflows (equity + debt), remittances, and ECB borrowings. Demand for dollars comes from: imports (especially crude oil), FPI outflows, import of services, external debt repayments, and outward FDI. When demand persistently exceeds supply — as happens during oil price spikes, FPI sell-offs, or geopolitical risk-offs — the rupee depreciates.
- India's current account deficit (CAD): approximately 1.0–1.5% of GDP in FY2025–26 baseline; oil price spike can push it to 2.5–3% — significantly increasing dollar demand.
- Imported inflation: rupee depreciation raises the rupee cost of oil, gold, and electronic imports — feeding into WPI and CPI.
- Pass-through coefficient: a 10% rupee depreciation raises CPI by approximately 0.5–1.0 percentage points over 12 months (RBI estimates).
- Remittances: India is the world's largest remittance recipient (~$120 billion in FY2024–25); rupee depreciation mechanically increases the rupee value of remittances, providing a partial natural hedge.
- RBI exchange rate policy: published in the "Annual Report on Foreign Exchange Management" under FEMA, 1999; India's stated policy is "maintaining orderly market conditions."
● Tracked since March 02, 2026 · last seen May 12, 2026 · updates as the daily brief publishes
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