Rupee’s valuation hits over-a-decade low: Currency hurt by Middle East war, FPI outflows

Rupee fell almost 5% in 2025, and has continued to weaken since then, even touching a new record low this year. However, the currency is falling not only in terms of comparision against the greenback but also against other currencies.Rupee has dropped to its weakest level in more than a decade, as compared to its global peers. The fall comes crude oil prices continue to soar amid the Middle East tensions and heavy foreign investor outflows continue to strain the currency.Data from the Reserve Bank of India’s latest bulletin showed that the currency’s 40-currency real effective exchange rate (REER) has fallen to 92.72. This measure, which adjusts for inflation across countries, is now well below its long-term average of 98.25, showing that rupee is much lower than its usual levels.Analysts cited by Reuters said that low inflation in the country has also pulled the REER down in recent months, along with rupee’s fall of about 4.5% so far this year. Back in March, the currency had hit a record low of 95.21 against the greenback.Even with the currency being undervalued, a quick recovery is unlikely, the agency reported. Analysts at BofA Global Research said the currency may remain under pressure due to strong demand for dollars, driven by higher oil imports and continued selling by foreign investors during uncertain market conditions.The latest REER figure is about 15 points lower than its levels in late 2024, marking one of the sharpest drops in recent years.A weaker REER makes Indian exports cheaper and more competitive but raises the cost of imports. It can also make it easier for new foreign investors to enter, even though it reduces the value of existing investments when converted into foreign currency. Consider this, Rupee’s six-currency REER fell to 89.61 in March, the lowest level since data began in April 2015 and well below its average of nearly 100, Reuters reported.The decline looks even sharper when measured against six key trading partners.India’s six biggest trading partners in 2024–25 were the United States, China, the United Arab Emirates, Russia, Saudi Arabia and Singapore, according to trade ministry data.“For long-term investors, the rupee’s current valuation provides an attractive entry point,” V Anantha Nageswaran, India’s chief economic adviser, told Bloomberg News on Thursday.The RBI has assumed an exchange rate of 94 against the US dollar for 2026–27. Its estimates show that a 5% from this level could increase inflation by about 40 basis points and raise growth by around 25 basis points.