Rupee at 95.36/$: Editorial on Currency Depreciation, CAD Pressure and FPI Outflows
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📌 Summary:
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The rupee touched a historic low of 95.36 per US dollar amid simultaneous pressure from a widening Current Account Deficit (CAD), large Foreign Portfolio Investor (FPI) outflows, and a strong dollar index (DXY)
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Context: CAD has widened to ~2% of GDP driven by high oil import bill (India imports ~85% of crude oil needs) and gold imports; FPI outflows totalled $21.2 billion in 2025-26 so far
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Core argument: The RBI's intervention arsenal is limited; burning forex reserves to defend the rupee is unsustainable and crowds out import cover, which should be maintained at minimum 9-10 months
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Causal chain: Higher oil prices → larger import bill → CAD widens → rupee weakens → imported inflation rises (especially edible oils, fertilisers, electronics) → RBI forced to balance inflation control with growth support
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Key data: Forex reserves at $618 billion (down from $705 billion peak); RBI sold ~$50 billion since Oct 2024 to defend rupee; net FPI equity outflows of $21.2B in FY26
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India's vulnerability: India's trade deficit is structurally large; every 1% rupee depreciation raises CPI by ~10-15 bps via import cost pass-through
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Solutions proposed: Diversify energy imports (Russia, UAE, West Africa), boost merchandise exports, attract FDI over volatile FPI flows, and selectively open NRI deposit schemes at attractive rates to bolster forex supply
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Editorial position: Managed float is preferable to rigid defence; building export competitiveness is the long-term solution to currency stability
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