Why Is The Indian Rupee Weak In 2025-2026 Explained

Why Is the Indian Rupee Weak in 2025–26? Explained Clearly (With Evidence)

In 2025–26, the Indian rupee (INR) has weakened significantly against the U.S. dollar, reaching historic lows and drawing attention from economists, markets, and policymakers. This article breaks down the core reasons behind this trend, the economic impacts, and what experts are saying, using recent data, news reports, and analyses.

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Watch this video for an explanation of the rupee’s fall:

1. Widening Trade Deficit Is a Major Pressure Point

One of the key reasons for the rupee’s decline is India’s widening trade deficit—when imports exceed exports.

• India’s trade deficit has widened because imports (especially crude oil and gold) have surged, while exports have struggled relative to foreign demand and tariff barriers.
• A trade deficit increases the demand for foreign currency like the U.S. dollar, which puts downward pressure on the rupee. [Swastika Article]

2. Capital Outflows and Investor Sentiment

Another important factor is capital flows—especially foreign portfolio investment (FPI) movements:

• Foreign investors have been withdrawing capital from Indian stocks and bonds, reducing the amount of foreign money entering India’s financial markets.
• When FPIs pull money out, they sell rupees and buy dollars, which increases demand for the dollar and weakens the rupee.
• Multiple reports highlight persistent outflows as a major pressure on the INR. [TOI]

3. Strong Global Dollar and External Conditions

• The U.S. dollar has strengthened globally due to global interest rate differentials and safe-haven demand.
• Emerging market currencies like the INR tend to weaken when the dollar is strong.
• This is not unique to India—many emerging market currencies face depreciation under similar conditions. [IAS Gyan]

4. Uncertainty Over Trade Agreements

• Delays in major trade deals, especially with the U.S., have affected investor confidence.
• High tariffs and stalled agreements have crimped export growth and reduced overseas investment interest.
• Contributes to weaker export momentum and lower foreign capital inflows. [Reuters]

5. RBI’s Policy Does Not Anchor the Exchange Rate

• The Reserve Bank of India (RBI) does not fix or peg the rupee; it is market-driven.
• RBI intervenes mainly to control excessive volatility, not maintain a targeted exchange rate.
• This allows the rupee to adjust naturally when market pressures arise. [Swastika Article]

6. Recent Market Evidence: Rupee at Historic Lows

• The rupee has traded past ₹90 and even above ₹91 toward the U.S. dollar—historic levels. [TOI]
• Trade pressures, capital outflows, and global conditions are key drivers of this decline.

Economic Impact of a Weak Rupee

Negative Impacts

• Imported goods become more expensive: fuel, electronics, etc. [IAS Gyan]
• Potential inflation pressure.
• Foreign travel and education costs rise.

Possible Benefits

• Exports may become more competitive, boosting demand abroad.

Conclusion: Multiple Forces at Work

The rupee’s weakness in FY2025–26 is not caused by a single factor, but rather a combination of internal economic dynamics and external global pressures:

• A widening trade deficit
• Capital outflows reducing foreign investment
• Strong global dollar trends
• Trade agreement uncertainties
• Market-driven exchange rates

Together, these forces explain the rupee’s significant decline, confirmed by both market observations and expert analysis. [TOI]

Sources

1. Swastika: Why the Indian Rupee is Weak
2. TOI: Rupee at Historic Lows
3. Drishti IAS: Depreciation of Indian Rupee
4. Reuters: Trade Impasse and Rupee

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"This article is for informational purposes only and does not constitute financial advice."