Indian Currency Experiences Sharpest Five Rupee Depreciation in Over a Decade

Indian Rupee's Depreciation Reaches Nearly Decade-High Pace

The Indian rupee's depreciation from 90 to 95 against the dollar has been the fastest in nearly a decade, reflecting the significant pressure on the currency amid rising oil prices and global uncertainty.

According to a Moneycontrol analysis of historical exchange-rate data, the rupee took just five months to weaken from 90 to 95, marking the sharpest comparable decline since 2013. This decline is similar to the "taper tantrum" episode in 2013, when the currency fell from 60 to 65 within a month amid large capital outflows and concerns over India's current account deficit.

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In contrast, the latest fall has coincided with a sharp rise in global crude oil prices following the escalation of conflict in West Asia. The rupee averaged 90.98 per dollar in February and weakened rapidly to 95.2 by May-end, even as India's crude basket climbed above $100 per barrel for a third consecutive month.

A comparison of the rupee's past performance reveals that the current depreciation marks a sharp break from the relatively gradual currency adjustments seen over much of the past decade. For instance, the rupee took 61 months to weaken from 65 to 70 in 2018, while the move from 70 to 75 took 20 months, and the slide from 50 to 55 took 43 months.

Despite the rapid weakening of the rupee, India's macroeconomic position remains significantly stronger today. Foreign exchange reserves remain above $690 billion, compared with less than $300 billion during the taper tantrum period, while the banking system and external accounts are viewed as more resilient.

However, the rapid weakening of the rupee raises risks for imported inflation, particularly through higher oil prices. A weaker currency increases the landed cost of crude oil, fertilisers, edible oils, and electronics imports, potentially adding pressure on inflation and widening the trade deficit. While the rupee's fall has so far been orderly compared with the volatility of 2013, the pace of depreciation highlights the growing pressure from higher oil imports, capital outflows, and geopolitical uncertainty.

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