The Indian rupee has recently slipped past the psychologically significant level of 90 against the US dollar, sparking concerns about the currency's stability. However, a recent report by SBI Research suggests that this decline should not be interpreted as a sign of fundamental weakness. The report argues that despite the depreciation, the rupee remains one of the least volatile currencies among major emerging economies.
According to the SBI's Ecowrap report, while the rupee has depreciated approximately 5.5% since April 2025, this movement is primarily driven by external factors, notably the escalating trade dispute between the United States and India. The imposition of steep tariffs by the U.S. has particularly impacted Indian exports, contributing to the rupee's decline.
Despite the depreciation, the report emphasizes the rupee's low volatility. Since April 2025, the rupee's coefficient of variation has been a mere 1.7%, indicating that it is one of the most stable major emerging market currencies. This challenges the notion that the rupee is experiencing a "free fall" or is "out of control". The SBI report posits that the currency is sliding but not unstable.
Furthermore, the report points to valuation data that supports the rupee's underlying strength. The Real Effective Exchange Rate (REER) index has remained below 100 for three consecutive months, reaching a seven-year low of 97.40 in September 2025. This indicates that the rupee is undervalued rather than overextended. Similarly, the Nominal Effective Exchange Rate (NEER) has weakened to 84.6, reflecting a broad-based depreciation relative to India's trading partners.
The rupee's fall can be attributed to a combination of factors, including persistent dollar outflows and delays in finalizing a trade deal with the U.S. Foreign portfolio investors (FPIs) have been selling Indian stocks, creating significant dollar demand. Between July and October 2025, the combined excess demand in spot and forward merchant markets reached $102.5 billion.
The Reserve Bank of India (RBI) has been intervening to manage volatility in the currency market but has refrained from aggressively defending a specific exchange rate level. Some analysts believe that the RBI's restrained intervention has contributed to the speed of the rupee's decline. The central bank's strategy appears to be focused on smoothing volatility rather than preventing depreciation.
Looking ahead, the SBI report suggests that the rupee is likely to recover once a trade deal with the U.S. is finalized, which is expected before March 2026. However, uncertainty surrounding the trade negotiations may continue to exert pressure on the rupee in the short term. Other analysts predict that the rupee will remain under pressure, potentially trading in the 89.50–91.20 range, especially if crude oil prices remain elevated and foreign investors remain risk-averse.
Despite the recent decline, the Indian rupee has undergone a significant transformation over the past decade. It has evolved from being one of the most volatile currencies in Asia to one of the most stable, reflecting India's growing economic strength and effective management by the RBI. This stability makes Indian assets more attractive to investors and helps businesses plan and manage costs more effectively.
