Indian Rupee weakens amid inflation concerns

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The Indian Rupee has recently experienced significant movements, particularly against the US dollar. As of late November, the Rupee ended at a record closing low, affected by the general weakness in Asian currencies and increased dollar demand from foreign banks. The Rupee was noted to hover in a narrow range, ending at 83.365 against the U.S. dollar.

The Rupee has been steadily declining since 2011, where it has lost around half its value in that time. Recent performances indicates a cautious market sentiment, but also reflect broader global economic influences. The local currency’s movement has become somewhat ‘sticky’ around the 83 mark, where it seemed to be a ceiling since October 2024 until eventually breaking through in August 2024. Asian currencies, in general, have seen a downtrend, with notable declines in the Thai baht and Korean won​.

This helps answer the question of what is forex, because it’s not just intraday patterns that are impacting these Asian currencies, but instead the broader market and macroeconomy. CFD traders put themselves under high risk, and as we can see with the Rupee, there are many factors to consider in understanding its price.

Inflation and the Reserve Bank of India’s Monetary Policy

RBI’s Stance on Inflation

The Reserve Bank of India (RBI) has acknowledged the ongoing pressure of high prices also notes a moderation in retail inflation in recent months. The RBI’s November bulletin revealed a slight relief with inflation readings around 5% and 4.9% in September and October, respectively, down from the average of 6.7% in 2024-25. Despite this moderation, inflation remains above the RBI’s 4% target.

Impact of Inflation on Monetary Policy and the Rupee

Inflation plays a big role in shaping the RBI’s monetary policy, of course, and interest rates in turn play a big role in currency. The central bank’s efforts to normalise surplus liquidity and promote credit growth are part of its strategy to manage inflationary pressures while supporting economic growth – it’s a tricky balance.

In other words, the RBI has been fairly aggressive at 6.5% interest, but still less so than South Africa, Mexico, Brazil, Turkey, and a few others. The balanced approach shows an attempt to save the Rupee by making it more attractive than the USD (5.5% interest), whilst trying to control inflation.

Foreign Investment and Its Impact on the Rupee

Foreign Direct Investment (FDI) is another story behind India’s economic landscape. India remains a favoured destination for global investors, securing significant FDI for new greenfield projects, and generally being more optimistic than current day China. The attractiveness of the Indian market is facilitated by policies like the automatic route for FDI in several sectors, simplifying the investment process. However, some sectors still require government approval, and FDI caps vary by industry, with strict reporting requirements under the Foreign Exchange Management Act (FEMA) to ensure transparency​.

​​As foreign investors bring capital into India, it can lead to an increased demand for the Rupee, potentially strengthening its value. Apple is just one of many companies relocating its production from China to India. The RBI plays a crucial role in managing the monetary aspects of these investments. The Startup India program and initiatives like single-window clearance and the Goods and Services Tax (GST) have further enhanced the appeal of the Indian market for foreign investors, which could bode well for the Rupee in the long term​.

Economic Growth Prospects and Currency Strength

India’s GDP Growth Forecast

India’s economy is forecasted to grow at an impressive rate despite a global slowdown. In the July-September quarter of 2024, the GDP growth rate was estimated to slow to 6.8% from 7.8% in the previous quarter. However, this slowdown is seen as minor, with the economy expected to grow more than 6.0% over the coming years, the fastest among major economies. Such robust growth is driven by consumer demand, which constitutes about 60% of GDP growth, and strong urban demand despite weak external demand​.

Impact on the Rupee

Strong GDP growth is a positive indicator for the Rupee. A growing economy can attract more FDI and improve investor confidence in the currency. The forecasted growth, coupled with substantial government capital expenditure and robust consumption, suggests a favourable environment for the Rupee. However, the Rupee’s strength will also depend on how these growth forecasts materialise in the context of global economic challenges, along with domestic disparities between urban and rural demand​.


Facing global economic uncertainties, the Indian Rupee confronts challenges including inflation, rising interest rates, and geopolitical tensions. The RBI monetary policies, especially regarding inflation and foreign exchange, are pivotal for the Rupee’s stability. The relationship between domestic economic policies, global market dynamics, and foreign investment flows will be crucial in determining the Rupee’s path forward.

So far, besides inflation concerns, it seems that India is in a strong economy position regarding its currency, so this means one of two things: India’s currency has been slightly devaluing for reasons outside these core macroeconomic factors, or, India’s core macroeconomic factors are set to turn the Rupee around and soon begin to strengthen the currency.

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