Rupee Depreciation (2024–26): Causes, RBI Intervention

1. Why in News?

The Indian Rupee touched record lows (around ₹92 per USD in early 2026), becoming one of the weaker performing Asian currencies during periods of global volatility.

RBI intervened through dollar sales to reduce excessive fluctuations.

2. What is Rupee Depreciation?

Rupee depreciation means:

More rupees are required to buy 1 US dollar.

Example:

If ₹83 → ₹92 per USD

Rupee has depreciated.

It reflects external sector pressure.

3. Key Causes (2024–26 Phase)

1️⃣ Strong US Dollar

US interest rates remained relatively high

Capital moved to safer US assets

2️⃣ Foreign Portfolio Outflows

FIIs withdrew money from Indian equity & debt markets

3️⃣ High Oil Prices

India imports ~85% of crude oil

Higher oil = higher dollar demand

4️⃣ Current Account Deficit Pressure

Trade deficit widened

5️⃣ Global Risk Aversion

Geopolitical tensions

Global slowdown concerns

4. RBI’s Role

RBI intervenes via:

✔ Selling Dollars from Forex Reserves

Reduces excess volatility

Prevents disorderly movement

✔ Liquidity Measures

Open Market Operations

Variable Rate Repos

Important: RBI does NOT target a fixed exchange rate. India follows a managed float system.

5. Static Linkage

Exchange Rate Regimes:

Fixed

Floating

Managed Float (India)

Terms to Remember:

Current Account Deficit (CAD)

Balance of Payments (BoP)

Forex Reserves

Capital Account

Devaluation vs Depreciation

UPSC loves confusing these.

6. Impact of Depreciation

Positive:

Exports become competitive

Boost to IT & services

Negative:

Imported inflation (especially oil)

Pressure on inflation

External debt becomes costly

7. Prelims Angle (High Probability)

UPSC can ask:

Which of the following lead to currency depreciation?

Difference between depreciation & devaluation

RBI intervention tools

Managed float vs fixed system

They won’t ask “why rupee fell”.

They’ll ask mechanism.

8. Mains Angle

Should RBI defend the rupee aggressively?

Trade-off between reserves & stability

External vulnerability of emerging economies

9. RBI Grade B Angle

Impact on inflation targeting

Transmission to monetary policy

External sector management

10. PYQ Trend

UPSC repeatedly asks:

Exchange rate system

CAD implications

Capital flow impact

Currency appreciation/depreciation mechanics