Rupee’s fall is far worse than it looks: Focusing only on the dollar masks real depreciation, says Devina Mehra

The Indian rupee’s slide past the psychological 91-per-dollar mark has once again put the currency under sharp focus. While the move from 90 to 91 has unfolded in just 10 trading sessions, market experts caution that the true extent of the rupee’s weakness is being underestimated by an excessive focus on the US dollar alone.

Despite supportive macro data — including a sharp 19% year-on-year rise in exports in November — the rupee remains among the worst-performing global currencies this year, down nearly 6%. More striking is the pace of depreciation: it took nearly two decades for the rupee to move from 30 to 60 against the dollar, but only about 12 years to slide from 60 to 90.

Speaking to CNBC-TV18, Devina Mehra, Founder, Chairperson and MD of First Global, said the damage to the rupee looks far deeper when viewed against a broader currency basket rather than just the dollar.

“By focusing only on the dollar, we are massively understating how much the rupee has actually weakened,” Mehra said. She pointed out that the euro has moved from around ₹88.5 at the start of the year to close to ₹107, implying nearly a 20% depreciation for the rupee. Similar trends are visible against the pound and the Swiss franc, suggesting the rupee has underperformed most major global currencies.

Mehra also flagged narrowing interest rate differentials as a structural headwind. “A few years ago, differentials were 5-7%. Today they are closer to 2-2.5%. That makes India less attractive for capital flows and, theoretically, leads to currency depreciation,” she said, adding that lower rate attractiveness also impacts FPI inflows.

FII caution, weak earnings growth add pressure

From an equity flows perspective, Dhiraj Agarwal, Managing Director at Ambit Investment Managers, said foreign institutional investors (FIIs) have been cautious on India for much longer than just 2025. “FIIs have been generally cautious to negative on India for quite some time. India’s earnings growth has lagged the US and even markets like Japan and South Korea, and it is earnings growth that ultimately attracts portfolio money,” Agarwal said.

He noted that FIIs have sold nearly $18 billion worth of Indian equities this year, adding sustained pressure on the rupee. According to Agarwal, the current episode reflects a circular dynamic where equity outflows weaken the currency, and currency weakness, in turn, weighs on equities.

Agarwal also highlighted the Reserve Bank of India’s current policy stance. “The RBI is clearly prioritising growth — higher liquidity and lower rates. At this point, it appears willing to tolerate currency weakness rather than defend the rupee aggressively,” he said.

Also Read | Rupee may slip to 92 before stabilising, believes Motilal Oswal’s Navneet Damani

RBI may step in if weakness deepens

From a macroeconomic standpoint, Rumki Majumdar, Economist at Deloitte, stressed that the rupee’s fall has little to do with domestic fundamentals. “This is one of the rare periods when GDP growth, inflation, the current account, and fiscal deficit indicators are all in the green. There are no macro red flags,” she said.

Majumdar attributed the slide largely to global uncertainty and investor sentiment, including concerns around the US outlook and delayed trade negotiations. While domestic investors and mutual funds have cushioned the impact of FII outflows, she cautioned that a sharper fall in the rupee could become self-reinforcing.

“If the rupee falls further, it could sentimentally worsen FII outflows. At some point, the RBI may have to step in to contain the decline,” Majumdar said, adding that a sharp appreciation back to previous levels is unlikely in the absence of intervention.

Taken together, the consensus is clear: the rupee’s weakness is deeper and broader than headline dollar levels suggest, driven less by domestic fundamentals and more by global flows, sentiment, and relative underperformance — factors that may not unwind quickly.

Also Read | Rupee slide reflects weak flows, trade uncertainty, not macro stress: Experts

Watch accompanying video for entire discussion.