The Indian rupee on Wednesday breached the psychologically crucial ₹90 mark against the US dollar, its weakest level ever, making it the worst-performing currency in Asia. This sharp depreciation underscores mounting pressure from persistent foreign portfolio outflows, a record trade deficit and stalled India-US trade talks. This persistent weakness raises serious questions about its root causes and broader impact on commodity prices and the Indian economy.

Historical performance of INR vs USD

The Indian rupee has seen a steady decline over the past decade, falling nearly 40% from ₹62 in 2014 to a record low of over ₹90 per dollar today. This year alone, the rupee has weakened by more than 5%, continuing the long-term trend. In mid-2022, the INR was around ₹77.50, and by the end of 2023, it breached ₹83.20, signaling structural weaknesses driven by trade imbalances, capital inflows and currency market dynamics.

Why has INR weakened so much?

Interestingly, the US dollar index has not risen significantly in recent months, indicating that the rupee’s weakness is largely India-specific. High dollar demand in India – stemming from import payments, corporate hedging and foreign debt servicing – has been a key driver. Global investors’ preference for safe-haven assets amid geopolitical uncertainties has put more pressure on emerging market currencies like the INR.

Strong global demand for the US dollar, driven by trade settlements and investment flows, has widened India’s current account deficit and put pressure on the rupee. Continued foreign portfolio outflows in 2025 have exacerbated the situation, as investors turn to developed markets offering better yields and stability. Uncertainty surrounding US monetary policy and global risk aversion have fueled the withdrawal, reducing dollar inflows to India.

Despite persistently-weak crude oil prices, the rupee continues to weaken due to structural factors and persistent capital inflows. The Reserve Bank of India has attempted to stabilize the currency through spot and forward market interventions, selling dollars and tightening liquidity, but these measures have had limited impact as global risk sentiment and trade deficits dominate currency dynamics.

Meanwhile, India’s economy remains resilient, with GDP growth projected at 6.5% for fiscal 2025, supported by strong domestic consumption and infrastructure spending. However, the currency’s performance depends on external balance and capital flows rather than just domestic growth, meaning a strong economy can still coexist with a weak rupee when exports exceed imports.

Impact on commodity prices

A sharp depreciation of the Indian rupee below ₹90 against the US dollar will have a significant impact on India’s import-dependent economy. A weaker rupee makes imports more expensive, even if global prices are flat or soft, adding to pressure on domestic commodity prices.

Crude oil, which accounts for a significant share of India’s import bill, will see its land price rise despite the recent softening in global benchmarks. This could translate into higher fuel prices and transport costs, which could result in broader inflationary effects.

Similarly, gold and silver, of which India ranks among the world’s largest importers, are expected to become dearer in rupee terms, likely dampening consumer demand during the peak wedding season and affecting jewelery exports.

Edible oils such as palm and soybean oil, which are critical to India’s food supply chain, will also witness price hikes, household budget and food inflation measures.

Industrial metals such as copper and aluminum, which are essential for the manufacturing and infrastructure sectors, will see higher costs, reducing margins for industries and potentially slowing investment activity. These developments collectively pose a challenge to policymakers, who must strike a delicate balance between sustaining economic growth and containing inflationary pressures.

If weakness persists

If the Indian rupee continues to weaken, the economy may face several challenges. Higher costs for fuel, raw materials and essential commodities affect domestic prices, putting pressure on household budgets and corporate margins.

A widening current account deficit (CAD) is another concern, as increased import bills for crude oil, gold and industrial inputs weigh on the country’s external balance. This scenario may compel the Reserve Bank of India to intervene more aggressively, deploy foreign exchange reserves and implement measures to control volatility in the currency market.

While India’s strong domestic fundamentals, such as robust GDP growth and healthy forex reserves, may mitigate some of the impact, sectors heavily dependent on imports—such as energy, manufacturing and consumer goods—will feel the pinch. The interplay of these factors underscores the delicate task policymakers face in maintaining stability amid global and domestic headwinds.

(Author HAresh V is Head of Commodity Research, Geojit Investments Ltd. views are own)

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