The Indian rupee has touched Rs 90 per dollar. As expected, headlines screamed crisis, and social media churned theories. However, currency movements are far too complex to fit into 'good' and 'bad' boxes. A closer look shows that the rupee at 90 is not a problem — it's an adjustment that was required for the economy undergoing challenges.
Nominal vs Real: The Part Most People Miss
Over the last year, the US Dollar Index fell by 6%. In theory, other currencies should have appreciated. But that did not happen. The rupee fell 6%, and so did the Indonesian rupiah, South Korean won, and Vietnamese dong. Meanwhile, currencies like the Chinese yuan, Thai baht, South African rand, Malaysian ringgit, Taiwan dollar, Brazilian real, and Mexican peso appreciated.
These are nominal exchange rates that ticker on our screens. To understand what’s really happening, we need to look at the Real Effective Exchange Rate. The REER adjusts for inflation and trade. It answers one simple question: Is the currency expensive or cheap relative to economic fundamentals?
A value above 100 denotes that the currency is overvalued, while a value below 100 is undervalued.
Why Does This Matter?
An overvalued currency sounds good on paper, but it makes exports expensive and imports cheaper. This combination often squeezes the current account (difference between exports and imports), slows growth, and, in extreme cases, even raises the risk of financial stress.
An undervalued currency works in the opposite direction. Exports become cheaper, imports costlier, which makes the current account (difference between exports and imports) more favourable. For developing economies, a weaker REER is often an advantage, not a threat.
As of October 2025, India’s REER stands at 95, down from 103 a year ago. That’s an 8% real depreciation — the biggest correction among major Asian currencies this year. This means Indian goods have become cheaper. However, that doesn’t mean exports will jump overnight. Export cycles take time to adjust, and Trump’s tariffs have delayed this benefit for India.
Role of Inflation
Inflation plays a central role in long-term currency movements. India usually has higher inflation than advanced economies (on average by 3–4%). In such periods, the nominal exchange rate should be allowed to depreciate gradually. If it doesn’t, the rupee becomes overvalued in real terms.
Under former RBI Governor Shaktikanta Das, the RBI intervened heavily to keep the rupee stable. This created an artificially strong currency.
This approach has now changed.
The new RBI Governor, Sanjay Malhotra, has shifted to a more flexible policy: intervention only if needed to reduce volatility. At the same time, inflation in India is currently very low, even lower than in some advanced economies. In such a scenario, REER naturally declines, pushing the rupee into undervalued territory. This makes Indian exports more competitive.
Final Take
But the US tariffs have made Indian exports more expensive, reducing demand. A trade deal with the US would help, but with no agreement in sight, the rupee may remain volatile. India should allow the rupee to depreciate further if needed.
A rupee at 90 is, thus, not a verdict on India’s strength. It’s simply an adjustment reflecting inflation, tariffs, and a more flexible RBI.
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