Rupee's valuation sinks to over-a-decade low, bruised by Iran war, portfolio outflows

The Indian rupee's valuation versus other major currencies calculated on a trade-weighted basis has fallen to its lowest in more than a decade, hit by the Iran war-driven surge in crude oil prices and chunky foreign portfolio outflows.

The South Asian currency's 40-currency real effective exchange rate, which accounts for inflation differentials between different economies, fell to 92.72, the Reserve Bank of India's latest bulletin released late ‌on Thursday showed.

The ⁠REER ⁠is now hovering well below its long-run average of 98.25, pointing to a deeply undervalued rupee against historical norms.


Relatively subdued inflation in India has weighed on the REER in recent months, adding to the impact of the rupee's roughly 4.5% year-to-date decline, analysts said. The currency hit a record low of 95.21 per dollar in late March.

Despite the extent of the rupee's undervaluation, analysts see little near-term scope for a recovery.

While the rupee is highly undervalued on ⁠a REER ‌basis relative to historical ranges, it is likely to remain under pressure in the near term due to dollar demand "from ramp-up in oil imports to secure supplies ⁠and by sizeable equity outflows amid heightened risk aversion," analysts at BofA Global Research said in a note.

The March reading caps a roughly 15-point decline from late-2024 highs, marking one of the sharpest real depreciations episodes in years.

A weaker real-effective exchange rate helps make exports out of India more competitive, while increasing the cost of imports. It also offers foreign investors a cheaper entry point to the currency, even while hitting the value of their existing investments in Indian equities and fixed income in ‌foreign currency terms.

A narrower six-currency gauge suggests the rupee's undervaluation is starker. The rupee's 6-currency REER declined to 89.61 in March, the lowest on record for data going back to April 2015 and well-below ⁠the series average of nearly 100.

The U.S., China, United Arab Emirates, Russia, Saudi Arabia and Singapore were the country's 6-largest trading partners in the 2024-2025 fiscal year, trade ministrydata show.

"For long-term investors, the rupee's current valuation provides an attractive entry point," V. Anantha Nageswaran, India's chief economic adviser, told Bloomberg News on Thursday.

The Indian central bank has assumed a dollar-rupee exchange rate of 94 in its forecasts for fiscal year 2026-27. A 5% depreciation from those levels would add about 40 bps to inflation and 25 bps to growth, per RBI estimates.