Yearender 2025: How the rupee moved this year against the US Dollar

Kolkata: As 2025 draws to a close, the Indian rupee has moved under intense focus. This is the year when the rupee crossed the 90 barrier and kept inching towards Rs 91. However, RBI governor Sanjay Malhotra has said that they are not overtly bothered with the falling Indian currency and they are in no rush to arrest the falling rupee.

Bank of America Global Research has stated in a report this month that the rupee could rise to 86 per US dollar by 2026. This forecast is quite contrary to the notion that the Indian currency will continue to show weakness against the greenback. "Overall, we believe USD (US dollar) weakness next year would still support mild INR (Indian rupee) appreciation and that could pick-up pace around seasonally favourable 1Q for INR. We forecast INR to reach 86/USD by end-2026, in line with USD weakness next year.”

A fall in the value of the rupee against the Dollar easily leads to the situation when the value of anything has that a high import content, such as crude oil, gold, silver etc goes up in the domestic market. While the lower crude oil prices has masked the price in petroleum products, the surge in gold and silver prices have a lot to do with the falling value of the Indian currency.   

If and when the Indo-US trade deal is signed, the Indian rupee is sure to get a boost. Once this deal is concluded, FIIs are projected to come back to the Indian equity market with in flows that will raise the value of the Indian currency against the USD. "Finalization of trade deal to reduce the tariffs would be important in reducing uncertainty for equity investors," a report from Bank of America Global Research has said.

While one USD could be bought for Rs 3.30 in 1947, its value dropped with increasing rapidity over the past few decades. Each of the following years represent the time when the Indian currency crossed the psychological marks of Rs 10, Rs 20, Rs 30 etc leading up to Rs 90 in the current year.

1947: 3.3 to a USD

1983: 10.1

1991: 22.74

1993: 30.49

1998: 41.26

2012: 53.44

2014: 62.33

2018: 70.09

2022: 81.35

2025: Crossed 90

"Negative in the near term, but positive in the longer term", is the way some expert agencies feel about the Indian rupee against the US Dollar. Recently, Bank of America Global Research has said that the weakness in rupee could be seen for some time. The agency also said that the exchange rates influence both consumer and producers since this rate impacts the prices of many products and services.

Fiscal balances: The fiscal impact of a weaker rupee could have been bigger if the government would have provided subsidies to items that are expensive and imported such as petroleum products. Only some fertiliser subsidy can have a negaive effect on the fiscal situation due to a weaker currency.

Sentiment: Indicators such as PMI, consumer confidence, business sentiment could respond to changes in exchange rates. Foreign investors tend to take out investments if the fall is rapid. "As per our analysis, we find that during periods of more than 10% weakness in the rupee, the catalyst for sentiment weakening could be seen in the data, and given the extent of current weakness, it can feed through consumer sentiment and business sentiment potentially," the report mentioned.

Inflation: The current year is not showing the correlation that is usually seen between a weak rupee and high inflation. Down the years, an adverse exchange rate is often accompanied by high inflation. "Imported inflation" has been relatively mild this year. India has been passing through a period of very low inflation, which in other words, is witnessing a gradual strength in the underlying purchasing power of the rupee.

GDP growth: Growth rates can also be impacted by weaker exchange rate which makes imports more expensive, while it becomes easier for exporters to sell their products and services abroad.

External balances: Usually a weaker rupee helps the trade balance grow more favourably over time since it makes exports cheaper and imports more expensive.

One of the primary reasons for accelerating the rupee towards the 90 mark has been the outflow of FIIs vis-a-vis the equity markets. It is expected that the Indian stock market will witness another bull run in 2026. It can bring back the FIIs with loosened purse strings. If that happens dollars will flow in reducing the pressure on the rupee. Morgan Stanley has predicted Sensex 30 to reach 1,07,00 by the end of 2026. However, if the markets don't rise and FII inflows don't materialize, the risks will increase against the rupee. Pressure will also increase against the rupee if crude oil prices rise in the global markets.