The valuation of the Indian rupee against other major currencies, determined on a trade-weighted basis, has reached its lowest point in over a decade. This decline has been driven by rising crude oil prices due to the conflict in Iran and significant foreign portfolio outflows. According to the Reserve Bank of India’s latest bulletin, the rupee’s real effective exchange rate (REER) against a basket of 40 currencies fell to 92.72.
This REER figure is considerably lower than the long-term average of 98.25, indicating that the rupee is substantially undervalued by historical standards. Analysts have noted that relatively low inflation in India has contributed to the falling REER in recent months, coinciding with the rupee’s approximate 4.5% drop in value year-to-date. The currency hit a record low of 95.21 per dollar in late March.
Despite this significant undervaluation, analysts predict limited near-term recovery for the rupee. While it appears undervalued based on the REER, the currency is expected to remain under pressure due to increased dollar demand associated with a rise in oil imports and substantial equity outflows resulting from heightened risk aversion, as noted by analysts at BofA Global Research.
The March data reflects about a 15-point decline since the peaks in late 2024, marking one of the most significant episodes of real depreciation in recent years. A weaker real effective exchange rate tends to enhance the competitiveness of Indian exports while raising import costs. It also provides foreign investors with a more attractive entry point to the rupee, although it adversely affects the value of their existing investments in Indian equities and fixed-income securities when measured in foreign currency.
Additionally, a narrower six-currency REER indicates a more pronounced undervaluation of the rupee, which declined to 89.61 in March. This marks the lowest record since tracking began in April 2015 and is well below the series average of approximately 100.
The United States, China, the United Arab Emirates, Russia, Saudi Arabia, and Singapore are identified as India’s six largest trading partners for the fiscal year 2024-2025, according to trade ministry data.
V. Anantha Nageswaran, India’s chief economic adviser, remarked to Bloomberg News on Thursday that the current valuation of the rupee presents an appealing entry point for long-term investors. The Reserve Bank of India has forecasted a dollar-rupee exchange rate of 94 for the fiscal year 2026-27, noting that a 5% depreciation from this rate could contribute an estimated 40 basis points to inflation and 25 basis points to economic growth.
Published on April 24, 2026.
