Why is Indian rupee the lowest-performing Asian currency against the US dollar? Reasons are not that simple

The Indian rupee has been depreciating against the US dollar almost steadily since the Covid pandemic. While this is consistent with the longer-term historical pattern of roughly 2 to 3 per cent average annual weakening, a key question being raised is that the Indian currency is the worst performer in Asia vis-à-vis the dollar. What could be the reasons? India’s higher inflation relative to the US, persistent current-account deficits and capital-flow volatility are among the obvious ones. India’s central bank, the Reserve Bank of India (RBI), has been managing the depreciation, mainly by selling dollars through open market operations. Here are the facts and figures.

How Indian rupee depreciated against the US dollar since Covid pandemic

The peak stress was felt in the pre-Covid period itself, when the Indian rupee was around 72 against the dollar. By the end of 2021, it was at around 75 to a dollar. A sharp drop happened at the end of 2022, to around 83 per dollar. Between 2023 and 2025, it hovered in the 82–85 range, which was considered a relatively stable phase. But by the end of 2025, the slide worsened to more than 90, breaching what could be termed a psychological barrier at the time. Currently, the rupee is at around 95, after testing record lows of around 96 to a dollar earlier this year.

For the period from early 2020 to late 2026, this amounts to an overall substantial decline of around 30 per cent in nominal terms. If one takes the January 2022 average of 74.4 against late-2026 levels of 95, the depreciation is about 28 per cent.

Indian rupee’s performance against Asian peer currencies

During the Covid period, the depreciation was considered mild to moderate, as the Indian rupee was relatively resilient compared with some Asian peers, thanks to strong domestic recovery, capital inflows and RBI management. It was not the worst-hit currency in Asia at the time.

But in 2022, it became one of the weakest Asian performers, down 10 to 11 per cent. This was also a period of several global economic and geopolitical events that affected fuel prices, one of the largest components of India’s import bill. These include aggressive rate hikes by the US Federal Reserve, which the RBI's monetary policy broadly mirrored, a resurgence of the US dollar, and oil price spikes driven by the Russia–Ukraine war.

India imports close to 90 per cent of its crude oil requirement, leaving the rupee particularly exposed to energy-price shocks.

This was also a period that saw foreign portfolio investors (FPIs) pulling out of India. Indian equities, with a relatively low number of companies involved in emerging technologies such as artificial intelligence (AI), were regional underperformers. Foreign investors reduced capital inflows that could otherwise have supported the rupee.

As a result of these factors, India’s current account deficit widened significantly during this period.

The 2023–2024 period was relatively stable or modest. The rupee, in fact, often outperformed or matched peers in volatility terms, benefiting from higher Indian real yields, bond-index inclusion prospects and RBI interventions. It was at times among the more stable emerging-market or Asian currencies.

But the weakness accelerated in late 2024–2025, with the rupee becoming Asia’s worst or near-worst performer, going down 4.9 per cent in 2025. A different but related set of events happened in this period. US tariffs on Indian exports, including secondary penalties linked to buying Russian oil, were one major factor. FPI equity outflows increased amid concerns about India’s growth and corporate earnings. Uncertainties about the US–India trade deal and persistent current-account pressure were also reasons.

During this period, some other Asian currencies, such as the Malaysian ringgit, Thai baht, Taiwan dollar, Korean won and Singapore dollar, strengthened or held up better amid a softer dollar phase. Some of them were helped by trade surpluses or positive net international investment positions (NIIP), while India has a negative NIIP.

In 2026, the situation worsened partly due to the start and continuation of the Iran–US–Israel war, the closure of the Strait of Hormuz, and the resulting pressure on oil prices, bringing in a higher import bill. Benchmark Brent crude has been swinging between $70 and nearly $110 per barrel during the first and second quarters of this financial year.

Global bond-yield spikes, ongoing FPI caution and external deficits are adding to the pressure. But a steeper fall has been prevented through RBI interventions, as well as balance-of-payments measures such as attracting large deposits and borrowing inflows.

Structural and recurring reasons for the rupee underperformance

The Indian rupee is being boxed in by these key factors: high oil-import dependence, current-account and trade deficits, capital-flow volatility, interest-rate differentials and global US dollar strength, and a negative NIIP.

The RBI’s focus is to prevent a speculative attack on the rupee by curbing volatility, rather than defending the Indian currency at a specific level against the dollar. It intervenes through spot and forward sales in the foreign-exchange market and has built large reserves.

In short, what the rupee is witnessing currently is an orderly, or crawling, depreciation rather than an outright crisis.

Rupee’s nominal path reflects external vulnerabilities more than domestic factors

India is on a positive trajectory when it comes to GDP growth. When one looks at rupee depreciation from a longer-term perspective, the average depreciation remains in the 2–3 per cent range. But the currency is witnessing uneven bursts around global shocks.

When compared with other emerging-market currencies, India has shown greater resilience, buttressed by higher forex reserves, including inflows from remittances. It has, however, lagged behind surplus-running or less oil-dependent Asian currencies during periods of dollar softness or commodity stress.