However, the rupee has weakened more significantly against other major currencies, sliding nearly 14% against the euro and 10% against the British pound, amid expectations of policy shifts in Europe and the UK. Even so, its 3% depreciation versus the US dollar remains the steepest drop among Asian currencies in 2025.
Within Asia, the Indonesian rupiah is down 2% against the US dollar, while the Hong Kong dollar has held steady. On the gainers’ side, the Thai baht and Taiwan dollar have rallied more than 8% year-to-date.
Other regional peers — including the Singapore dollar, Malaysian ringgit, South Korean won, and Japanese yen — have each appreciated by about 6% against the US dollar this year, according to Bloomberg data.
Unlike in earlier episodes when a widening current account deficit weighed on the rupee, this time the weakness stems from persistent global trade uncertainties and capital outflows.
Foreign portfolio investors (FPIs) have withdrawn nearly $16 billion from Indian equities in 2025, citing stretched valuations and slowing earnings growth. Bond inflows, at $5.5 billion, are sharply lower than last year’s $17 billion, Bloomberg data shows. On a positive note, foreign direct investment rose 15% in the first quarter of FY26 to $18.6 billion.
The rupee has declined in every month this year except March and April, with July seeing the sharpest fall of 2.1%. Even S&P Global’s one-notch sovereign credit rating upgrade in August — the first in 18 years — could not stem the slide, as the currency lost a further 0.7% that month.
Analysts expect only limited downside from here. With the US dollar unlikely to reverse course sharply, a steep rupee depreciation against the greenback does not appear likely.
“There could be another 2–3% move in the dollar itself, and part of that has already played out,” said Chandresh Jain, EM Asia rates and FX strategist at BNP Paribas.
He expects the rupee to continue underperforming despite the dollar’s weakness and sees the currency trading in the 87–89 range.
For context, the rupee plunged over 10% in 2022, but the pace of depreciation has since slowed — falling 0.6% in 2023 and 2.8% in 2024. Interestingly, the local currency has surged nearly 10% against the Japanese yen this year — the strongest performance among Asian currencies.
The Hong Kong dollar (+7%) and Philippine peso (+4.2%) have also gained against the yen, while the Indonesian rupiah has fallen 7.4% and the Chinese renminbi has weakened by about 4%.
