{"id":12970,"date":"2026-04-02T06:49:19","date_gmt":"2026-04-02T06:49:19","guid":{"rendered":"https:\/\/www.incredmoney.com\/blog\/?p=12970"},"modified":"2026-04-07T07:57:20","modified_gmt":"2026-04-07T07:57:20","slug":"rupee-at-95","status":"publish","type":"post","link":"https:\/\/www.incredmoney.com\/blog\/rupee-at-95\/","title":{"rendered":"Rupee at 95"},"content":{"rendered":"
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A reason to worry?<\/em><\/p>\n

One reader recently wrote asking about the rupee\u2019s slide against the dollar. With the USDINR hovering around \u20b995, I\u2019m sure many would have this question – Why is the Rupee really depreciating? Is there anything wrong with our economy?<\/p>\n

Before getting into what\u2019s actually happening, one number is worth keeping in mind. When India moved to a market-determined exchange rate in 1992-93 after the liberalisation reforms, the rupee was at roughly \u20b926 to the dollar. It\u2019s now at \u20b994. That\u2019s a depreciation of about 3.7% every single year, on average, for over three decades. And for most of that time, the economy grew steadily.<\/p>\n

So the rupee falling is not new. What\u2019s worth understanding is why it happens, what it actually costs us, and whether \u20b995 today is cause for concern or simply where things were always headed.<\/p>\n

Why Has the Rupee Always Fallen?<\/h2>\n
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It really comes down to one simple idea: the inflation differential. India\u2019s inflation, due to it being a developing economy, has historically run higher than America\u2019s. When your prices are rising faster than your trading partner\u2019s, your currency has to weaken to keep trade balanced. It\u2019s not a crisis, it\u2019s just how it works.<\/p>\n

The good news is that this gap is closing. The India-US medium term inflation differential, which used to be 4-5%, is now closer to 2-3%. The rupee will continue depreciating, just more gradually than before.<\/p>\n

Currency moves are quite complex. While there are many factors that impact the Rupee in the near term like capital flows, geopolitics and others, inflation differential is one of the most structural factors.<\/p>\n<\/div>\n<\/div>\n

Why It Still Hurts, The Import Problem<\/h2>\n
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India is a net importing country, and this is where rupee depreciation actually bites us as a nation.<\/div>\n<\/div>\n

We import roughly 85% of our crude oil needs. Last year, India\u2019s oil import bill was about $137 billion. Every time the crude prices spike (like how they have during this war), our import bill rises. On top of that, India is one of the world\u2019s largest importers of Gold and a significant importer of edible oils like palm oil from Malaysia and Indonesia.<\/p>\n

Against that, our exports of goods don\u2019t match up. This is what economists call the\u00a0Trade Deficit, we spend more dollars buying from the world than we earn selling to it.<\/p>\n

Here\u2019s where our Services exports and Remittances come to rescue.<\/p>\n

Our Current Account Deficit\u00a0(Trade Deficit minus Services and Remittances) has shrunk dramatically over the last decade. India\u2019s IT sector, BPO companies, and services exports bring in enormous amounts of foreign currency, quietly acting as a cushion against everything we spend on oil and gold.<\/p>\n

Our Current Account Deficit is still negative, but with a growing economy and a strong thrust on increasing exports, the pain is reducing.<\/p>\n

The Other Pressure: Foreign Investors Leaving<\/h2>\n
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There\u2019s a second force pulling the rupee down right now, foreign investors heading for the exit.<\/div>\n<\/div>\n

When US interest rates go up or when Indian equities start becoming less attractive due to high valuations or there are more lucrative opportunities elsewhere, investor money flows out of India. Simple as that.<\/p>\n

This is the problem that we have faced in the last couple of years.<\/p>\n

In 2024 FIIs pulled out Rs. ~3 Lakh Cr and the 2025 number was again ~3 Lakh Cr. In 2026, the number is already ~1.6 Lakh Cr.<\/p>\n

This gets reflected in our\u00a0Capital Account Flows\u00a0(see chart below) which has been the lowest in the last 15 years.<\/p>\n

When investors pull out from India, the demand for USD shoots up. And all that dollar demand puts pressure on the rupee. The RBI does step in sometime to defend the rupee by selling dollars from its reserves to slow the fall. With $698 billion in forex reserves in March 2026, we have a solid buffer. But every dollar spent defending the rupee is one less dollar available for everything else.<\/p>\n

The Full Picture – Balance of Payment<\/h2>\n
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Is the Rupee Cheap or Expensive Right Now?<\/h2>\n

This is where it gets genuinely interesting. Currencies, like stocks, have a fair value. Economists track this using something called REER, the Real Effective Exchange Rate. Think of it as a fair value meter that measures the Rupee against all our major trading partners, adjusted for inflation.<\/p>\n

Think of it as a fair value meter for a currency.<\/p>\n

Above 100 means the Rupee is overvalued, hurting exports. Below 100 means undervalued, helps exporters.<\/p>\n

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Source: BIS, FRED<\/em><\/div>\n<\/div>\n<\/div>\n<\/figure>\n<\/div>\n

The Rupee was arguably expensive on a real basis for large parts of 2024. As the Rupee depreciated from 83 in the start of 2024 to ~95 now, the REER has come down to around 94.8. This means the Rupee has moved from overvalued to slightly undervalued in real effective terms.<\/p>\n

Summing it up<\/h2>\n

Rupee at \u20b995 is not the emergency it looks like on TV. The Middle east war has complicated things in the short term – higher oil prices mean a larger import bill, which puts direct pressure on the currency. But that\u2019s a cyclical problem, not a structural one.<\/p>\n

Structurally, the rupee was always going to get here. That\u2019s what inflation differentials do over decades. And as India grows into a more developed economy, our inflation will gradually converge with the US, slowing the pace of depreciation over time.<\/p>\n

The good thing is that our current account position, accounting for the size of the economy, is in far better shape than it was ten years ago. And on a fair value basis, the Rupee has become cheaper.<\/p>\n

The noise around the Rupee is always louder than the actual signal. The signal right now says: things are difficult but not broken, and in some pockets, there\u2019s genuine opportunity.<\/p>\n

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If you enjoyed this newsletter, feel free to share it with your friends and family!<\/p>\n<\/div>\n

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Till the next time,<\/p>\n

Vijay<\/p>\n

CEO – InCred Money<\/p>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

A reason to worry? One reader recently wrote asking about the rupee\u2019s slide against the dollar. With the USDINR hovering around \u20b995, I\u2019m sure many would have this question – Why is the Rupee really depreciating? Is there anything wrong with our economy? Before getting into what\u2019s actually happening, one number is worth keeping in […]<\/p>\n","protected":false},"author":4,"featured_media":12998,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":""},"categories":[5],"tags":[],"class_list":["post-12970","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-newsletter"],"acf":[],"yoast_head":"\nRupee at 95 - InCred Money<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.incredmoney.com\/blog\/rupee-at-95\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Rupee at 95 - InCred Money\" \/>\n<meta property=\"og:description\" content=\"A reason to worry? 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