Is the Indian Rupee Stable in Real Effective Terms?
Synopsis
The Indian rupee has shown resilience in real effective terms, balancing nominal depreciation with rising prices. Despite challenges in foreign portfolio flows and trade deal uncertainties, the RBI highlights the adequacy of forex reserves. Discover the details behind these economic shifts.
Key Takeaways
Indian rupee stability in real effective terms.
Nominal depreciation balanced by higher domestic prices .
Net FPI outflows due to trade deal uncertainties .
Current account deficit improved in Q2 2025-26.
Forex reserves provide a strong safety net.
New Delhi, Dec 23 (NationPress) The Indian rupee exhibited stability in real effective terms during November, as the nominal effective depreciation of the INR was balanced out by rising prices in India relative to its key trading partners, as reported in the Reserve Bank of India’s (RBI) December Bulletin.
In November, the rupee saw a decline against the US dollar, influenced by the strengthening of the US dollar, subdued foreign portfolio investments, and the prevailing uncertainty regarding the India-US trade negotiations.
According to the Bulletin, the volatility of the INR, indicated by the coefficient of variation, decreased in November compared to the previous month and remained lower than that of most other currencies. As of December 19, the INR had depreciated by 0.8 percent from its end-November position.
From April to December 18, 2025-26, net foreign portfolio investment (FPI) experienced outflows primarily in the equity sector. Following two months of inflows, FPI flows turned negative in December.
The RBI noted that the uncertainty surrounding the India-US trade deal and investor caution regarding high domestic valuations contributed to the muted net FPI flows to India in recent months.
External commercial borrowing (ECB) registrations saw a decline from April to October 2025, indicating a slowdown in offshore fundraising activities. Additionally, net inflows from ECBs were lower compared to the previous year, with a significant portion being allocated for capital expenditure.
India's current account deficit improved in Q2 2025-26 compared to the same period last year, bolstered by a reduced merchandise trade deficit, robust services exports, and strong remittance inflows.
However, net capital inflows were inadequate to meet current account financing needs, resulting in a dip in foreign exchange reserves.
Despite this, India's foreign exchange reserves remain sufficient, covering more than 11 months of goods imports and accounting for over 92 percent of the outstanding external debt, as per RBI.
Point of View
The recent findings by the RBI highlight the resilience of the Indian rupee amidst global economic uncertainties. While challenges remain, particularly concerning foreign investments and trade negotiations, the overall stability of the rupee and the adequacy of our forex reserves provide a foundation for cautious optimism.
NationPress
6 May 2026
Frequently Asked Questions
What factors influenced the stability of the Indian rupee in November?
The stability was influenced by rising prices in India that offset the nominal depreciation of the INR, along with external factors like the strengthening US dollar and muted foreign portfolio flows.
How did the RBI assess the volatility of the INR?
The RBI noted that the volatility of the INR decreased in November compared to the previous month, remaining lower than most currencies.
What is the current status of India's foreign exchange reserves?
India's foreign exchange reserves are considered adequate, covering over 11 months of goods imports and more than 92% of the external debt outstanding.
