Let’s connect the dots.
The recent Gulf conflict and disruption in key oil routes have pushed crude prices higher. For India, that’s a problem—we import most of our oil, so we suddenly need more dollars to pay for it.
We have seen the rupee move from around Rs.91 to touching Rs.94 recently, before settling slightly lower.
But this isn’t just about what’s happening today..
If you zoom out, the rupee has moved from around Rs4.7 per dollar in the 1950s to Rs 90+ today.
At first glance, it looks like a steady fall.
- 1950s–1960s: Rs 4.7 per dollar
Fixed exchange rate era—stable but controlled - 1966: Sharp devaluation → ~Rs7.5
First major reset - 1991 crisis: Rs 17 → Rs 25+
Balance of payments crisis → liberalisation - 2000s: Gradual slide → Rs 40–Rs 50
Globalisation phase - 2013 taper tantrum: Rs 60+
Capital outflows hit emerging markets - 2020s (now): Rs 80–Rs 94 range
Oil, inflation, global uncertainty
But in reality, one fundamental reason is that currency value adjusts over time in response to price movements in each country. When one country consistently has higher inflation than another, its currency tends to gradually weaken to reflect that difference in purchasing power.
Purchasing Power Parity (PPP) — the starting point!
Before markets, traders, and speculation… there’s a simple question:
What can your money actually buy in your own country vs another?
That’s what Purchasing Power Parity (PPP) measures. It compares the cost of the same basket of goods across countries, and over time, currencies adjust so purchasing power stays broadly aligned.”
ie : If a basket of goods costs $100 in the US and the same basket costs 5,000 rupees in India, PPP implies the exchange rate should be 50 rupees for $1, say.
To understand PPP, you can watch a video here.
Over time:
- Countries with higher inflation (like India) tend to see their currency gradually weaken.
- Because prices rise faster, and exchange rates adjust to maintain purchasing power balance.
PPP acts like a long-term anchor for currency value.
So part of this trend is not a crisis—it’s a long-term adjustment playing out quietly over decades. But currency moves are not that simple. There are multiple factors that play in the movement.
What’s driving the pressure right now?
Demand & supply of the Currency — what moves it daily?
Now comes the market reality.
Currencies are traded like any other asset and most are compared with the dollar.
If demand > supply → currency strengthens..
If supply > demand → it weakens..
And this demand is influenced by several factors:
Interest rates & inflation
Higher interest rates attract global investors.
More money flows in → higher demand for currency → appreciation
But:
- Lower rates → encourage spending
- Higher rates → control inflation
Central banks like the RBI constantly balance this.
Economic performance
Strong growth, jobs, and manufacturing → boost confidence.
More confidence → more investment → stronger currency.
Trade balance
If a country exports more than it imports → demand for its currency rises
India imports a lot of oil → which puts pressure on the rupee. Because you need a lot of dollars to buy oil, we need a lot of USD, and we have to keep paying more in our currency-INR, to get USD.
For example, if businesses outside India buy goods and services from India, they will pay in dollars, thereby meeting demand for USD in India. Therefore, the more a country exports, the greater its access to other currencies, and the lower the chances of its own currency depreciating.
Political stability & global sentiment
Investors prefer stability.
Uncertainty (wars, elections) → money flows to “safe” currencies like the US dollar.
Market speculation
Sometimes currencies move simply because people expect it to move and take positions.
So what’s happening right now?
The rupee is under pressure because:
- Oil prices are rising, so more USD is required to buy oil.
- Global uncertainty is high, with war and tariffs.
- Capital is flowing into safer assets.
In the short term, currencies can move much faster—and for very different reasons:
That’s what’s causing the current volatility.
And this is where the RBI steps in..
With the rupee under pressure, the Reserve Bank of India has rolled out a series of measures.
Not to “fix” the rupee at a specific level—but to prevent panic and excessive volatility.
What has the RBI actually done?
Limited how much banks can bet on currencies.
Banks can no longer take very large positions.
This reduces aggressive one-way bets against the rupee.
Shut down a key speculation route (NDFs)
Banks are no longer allowed to offer certain offshore derivative trades.
This cuts off a major channel used to speculate on the rupee..
Forced speculative trades to unwind
As a result of these steps, traders have had to exit positions.
Which has led to dollar selling—and some support for the rupee..
Shifted focus back to real demand
Forex markets are being nudged toward genuine use—like trade and hedging.
Less speculation, more stability.
Continued silent intervention
The RBI still steps in when needed—selling dollars to smooth sharp moves.
Acting like a shock absorber, not a controller.
So what’s the real takeaway?
When you see headlines like “Rupee at 94,” it feels dramatic.
But the reality is layered:
- Some of it is temporary pressure—oil, global flows, uncertainty.
- Some of it is policy in action—RBI managing volatility.
- And some of it is a long-term adjustment that happens as economies evolve.
A simple way to think about it
Currencies don’t move in a straight line. They react in the short term… and adjust over the long term. And the central bank like the RBI’s role isn’t to stop that movement—it’s to make sure it doesn’t turn into chaos.
If a country wants a stable currency, it needs to be self-reliant and export goods that are irreplaceable and indispensable.
“The rupee isn’t just falling—it’s adjusting, reacting, and being carefully managed along the way.”
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