Finance Minister Nirmala Sitharaman has stated that the Indian rupee's volatility is primarily against the US dollar, while it remains relatively stable compared to other major global currencies. This assertion comes amid concerns about the rupee's depreciation and its potential impact on the Indian economy.

Factors Influencing Rupee Volatility

Sitharaman attributed the fluctuations in the rupee's value to a combination of global and domestic factors. These include:

• Dollar Index: The movement of the dollar index, which measures the US dollar's strength against a basket of other currencies, significantly impacts the rupee's exchange rate.
• Capital Flows: Trends in capital flow, particularly foreign investment inflows and outflows, play a crucial role. Foreign investors withdrawing funds from Indian markets can weaken the rupee.
• Interest Rates: The level of interest rates in India and other major economies influences the flow of capital and, consequently, the rupee's value.
• Crude Oil Prices: As a major importer of crude oil, India's currency is sensitive to crude oil price fluctuations.
• Global Trade Tensions: Concerns about international trade disputes and potential US tariff threats can also impact the rupee.
• Geopolitical Risks: Broader geopolitical uncertainties contribute to currency volatility, not just in India.

Rupee's Performance Compared to Other Currencies

The Finance Minister has emphasized that the rupee has performed better than many of its peer currencies against the backdrop of a strengthening dollar. She noted that other Asian currencies, such as the South Korean Won and Indonesian Rupiah, have depreciated more than the Indian rupee during certain periods. Sitharaman has also pointed out that the rupee's performance is better when compared to other currencies. The Reserve Bank of India (RBI) also echoed this sentiment in its Financial Stability Report, stating that the rupee has performed relatively better than its peers.

RBI's Role and Forex Reserves

The Reserve Bank of India (RBI) plays an active role in monitoring and managing the rupee's volatility. The central bank intervenes in the forex market to curb excessive fluctuations and maintain stability. While India's foreign exchange reserves are substantial, the RBI is using them cautiously, avoiding rapid depletion. As of January 24, 2025, India's foreign exchange reserves stood at $629.55 billion. The RBI's efforts are aimed at curbing excess volatility, not fixing the value of the rupee.

Impact of Rupee Depreciation

A weaker rupee can have several implications for the Indian economy:

• Increased Import Costs: A depreciating rupee makes imports more expensive, which can lead to inflationary pressures.
• Benefit to Exporters: On the other hand, a weaker rupee can benefit exporters by making their goods more competitive in the global market.
• Impact on Trade Deficit: A weaker rupee can worsen the trade deficit if imports increase more than exports.

Rupee's Recent Performance

The Indian rupee has recently experienced volatility, hitting a record low of ₹88.36 against the US dollar on September 5, 2025. This decline was attributed to persistent foreign fund outflows, renewed global trade tensions and US tariff threats. However, the rupee has also shown signs of recovery at times, gaining ground due to factors such as a weaker dollar and a drop in global crude oil prices. On September 5, 2025, the rupee rose 1 paisa to 88.11 against the U.S. dollar in early trade.

Expert Views and Future Outlook

Experts believe that if global market trends remain unfavorable, the rupee could weaken further to ₹90 per dollar by mid-2026. However, if the RBI actively intervenes and India's economic outlook strengthens, the rupee may stabilize around ₹85-86 per USD. Some analysts forecast that the rupee could weaken further if tariffs persist. Other analysts anticipate that the rupee will appreciate in value.