Will the Rupee Depreciate Further? How It Affects You

The Indian rupee (INR) has been making headlines due to its recent depreciation against the US dollar. As of early 2025, the rupee has breached the 85 mark, hitting an all-time low of 86.70 on January 13, 2025. This depreciation has sparked concerns about its future trajectory and the implications for the Indian economy and individual citizens. This article delves into the factors driving the rupee's depreciation, its potential future trends, and how it affects you as an individual.

Understanding Rupee Depreciation

What is Rupee Depreciation?

Rupee depreciation refers to the decline in the value of the Indian rupee relative to a foreign currency, typically the US dollar. The exchange rate is the price of one currency in terms of another. India follows a managed floating exchange rate system, where the Reserve Bank of India (RBI) actively trades in the market to contain volatility and influence the exchange rate. You may want to check this blog out: RBI Monetary Policy Update: Insights and Implications for the Indian Economy

Key Factors Driving Rupee Depreciation

1. Global Economic Factors:

   • Strong US Dollar: The US dollar has strengthened due to robust economic growth in the US and a proactive Federal Reserve. Investors seeking stability in volatile global markets prefer dollar-denominated assets, further bolstering the dollar.
   • Federal Reserve’s Tight Monetary Policy: Despite a 25 basis point rate cut, the Federal Reserve remains hawkish in its approach to inflation control. Higher interest rates in the US attract capital flows away from emerging markets like India, increasing pressure on the rupee.
   • Global Economic Volatility: Geopolitical tensions, energy crises, and supply chain disruptions have created uncertainty, prompting global investors to shift toward safer currencies like the dollar. Besides, read How to Build an Investment Portfolio from Scratch

2. Domestic Factors:

   • Economic Slowdown: India’s GDP growth has fallen to a three-quarter low, dampening investor confidence. Industrial production and manufacturing sectors show subdued growth, further weakening economic fundamentals.
   • Widening Trade Deficit: India’s merchandise trade deficit has expanded due to a rise in imports, particularly crude oil, while exports remain sluggish. Higher import bills have increased demand for dollars, putting downward pressure on the rupee.
   • Inflationary Pressures: Rising domestic inflation reduces the rupee’s purchasing power and erodes investor confidence. Costlier imports, especially energy and technology, exacerbate inflationary trends. Check out: Real Estate vs. Stocks: Which One Is the Better Investment?

Future Trends of the Rupee

Predicted Levels of Rupee Depreciation

Analysts expect the rupee to depreciate further to around 87 per dollar by March 2025, depending on global market dynamics and policy actions. The RBI’s strategy of allowing a wider range for the rupee is seen as prudent, reducing resource expenditure and aligning with market forces.

RBI’s Strategy

The RBI appears to have eased its control over the rupee, allowing it to depreciate against the US dollar over the last month. This marks a departure from its earlier stance of tightly managing the rupee to curb sharp declines. The RBI’s reduced intervention points to an increased tolerance for rupee depreciation, aligning it with market forces and easing pressure on reserves. You might be interested in The Psychology of Spending for Urban Indian Professionals

Impact of Rupee Depreciation on the Economy and Individuals

Impact on Imports

A weaker rupee makes imports costlier. India is 85% dependent on foreign oil to meet its needs for fuels, such as petrol, diesel, and jet fuel. The basket of Indian imports includes crude oil, coal, plastic material, chemicals, electronic goods, vegetable oil, fertiliser, machinery, gold, pearls, precious and semi-precious stones, and iron and steel. With the rupee depreciating, importing these items will become more expensive, potentially leading to higher inflation.

Impact on Exports

While a weaker rupee typically boosts export competitiveness by making Indian goods cheaper in global markets, certain factors are limiting potential gains. Many exporters rely heavily on imported raw materials, and the increased cost of imports due to the falling rupee offsets much of the advantage. Additionally, expenses such as shipping, insurance, and marketing are also dollar-denominated, thereby negating the benefits of a depreciated rupee. Check out The Role of Insurance in Wealth Protection

Impact on Foreign Education and Travel

The weakening rupee against the US dollar could make foreign education and travel more expensive. Students now need to pay more rupees for every dollar charged by foreign institutions as fees. Similarly, foreign travel will become costlier as the rupee buys fewer dollars.

Impact on Remittances

Non-resident Indians (NRIs) who send money back home will end up sending more in rupee value due to the depreciation. Check out The Best Money Management Apps in 2025

Conclusion

The depreciation of the Indian rupee is a complex issue influenced by both global and domestic factors. While the RBI’s strategy of allowing the rupee to depreciate further aligns with market forces, it is crucial for policymakers to balance market stability and resource conservation. As an individual, you may face higher costs for imports, foreign education, and travel. However, the depreciation also presents opportunities for exporters and can potentially boost the competitiveness of Indian goods in the global market. Staying informed about the latest trends and developments will help you navigate the challenges posed by the depreciating rupee. For those in pursuit of their dream home, investment opportunities, or a sanctuary to call their own, Jugyah provides top housing solutions with its intelligent technology.

Frequently Asked Questions

Q1. How can I check the current exchange rate of the rupee?

You can check the current exchange rate of the rupee against major currencies on financial news websites, mobile apps, or through your bank’s website. Websites like XE or OANDA provide real-time exchange rates.

Q2. How much has the rupee depreciated in the past year?

As of early 2025, the rupee has depreciated over 4% since the level of 83.19 on January 1, 2024. It has breached the 85 mark and hit an all-time low of 86.70 on January 13, 2025.

Q3. What are the benefits of a depreciating rupee for exporters?

A weaker rupee typically boosts export competitiveness by making Indian goods cheaper in global markets. However, the benefits are limited due to the high import content in shipments and uncertainties in the global market.

Q4. How can I protect myself from the impact of rupee depreciation?

To protect yourself from the impact of rupee depreciation, consider the following steps:

• Diversify Investments: Invest in a mix of domestic and international assets to reduce risk.
• Hedge Against Currency Fluctuations: Use financial instruments like forward contracts to hedge against currency fluctuations.
• Monitor Exchange Rates: Stay informed about exchange rate movements and adjust your financial decisions accordingly.

Q5. What is the RBI’s current strategy regarding the rupee?

The RBI appears to have eased its control over the rupee, allowing it to depreciate against the US dollar over the last month. This marks a departure from its earlier stance of tightly managing the rupee to curb sharp declines. The RBI’s reduced intervention points to an increased tolerance for rupee depreciation, aligning it with market forces and easing pressure on reserves.