Why Rupee and other Currencies are falling against dollar?

💸 Why Is the Indian Rupee Falling Against the US Dollar?

A Simple Explanation for Everyone

By Lalan Choudhary | BPSC Rank 72

Recently, a friend innocently asked me on WhatsApp:

“Why is the rupee falling so much against the dollar? Is India’s economy doing badly?”

It’s a great question — and the short answer is no, this fall is not due to India's weak economy, but due to global factors, especially what's happening in the United States.

In this post, let’s break it down in simple terms so that anyone can understand.

📉 What’s Causing the Rupee to Fall?

If you look at the trend, you’ll notice the rupee has consistently depreciated against the US dollar over the past months and years.

However, this is not because India is failing. Instead, it’s mainly because:

Inflation is rising in the US.

The US Federal Reserve is aggressively raising interest rates to control that inflation.

Global investors are reacting by moving money to the US, causing the dollar to strengthen.

In fact, the IMF’s economic outlook even predicted 2023 as a possible year of recession due to these monetary tightening measures.

💰 What Happens When the US Raises Interest Rates?

When interest rates rise in the US:

1. Foreign investors pull out of developing countries (like India).

2. They invest in US bonds, which now offer better returns.

3. This leads to a higher demand for US dollars in the global market.

4. A stronger dollar means we need more rupees to buy each dollar.

🌎 Global Economic Context

This isn’t happening in isolation. Other global factors have worsened the situation:

Massive $3 trillion US stimulus post-COVID created high demand for commodities.

Meanwhile, other countries faced twin problems:

Inflation (due to Russia-Ukraine war, oil pricing cartels, shipping issues, etc.)

Recession (slow growth, high costs)

The US dollar remains the world’s reserve currency, so countries continue to buy and hold dollars.

The US can print dollars and the world still demands them — a privilege not available to developing nations.

📈 Two Reasons the Dollar Will Continue to Appreciate

1. Higher Interest Rates in the US → More investment flowing there.

2. Speculative Demand → Investors expect the dollar to rise further, so they’re buying more now.

 Is a Falling Rupee Bad for India?

Not necessarily. Here’s why:

We live in a flexible exchange rate system — currencies go up and down based on global demand and supply.

A weaker rupee makes Indian exports cheaper in global markets.

While imported raw materials become more expensive, Indian industries often add value before exporting — making them competitive despite input costs.

Export-heavy sectors like IT, textiles, pharma, etc., benefit from a weaker rupee.

So in some cases, falling rupee = higher export earnings.

What Should India Avoid Doing?

The Reserve Bank of India (RBI) might be tempted to stop the rupee from falling by selling US dollars from our foreign exchange reserves.

But this is risky.

Our reserves have already dropped from $600 billion to $537 billion.

Using reserves just to maintain exchange rates is not sustainable.

Instead, we should preserve those reserves for:

Managing speculative pressure

Financing essential imports

Maintaining economic stability

 Conclusion

A falling rupee is not a sign of failure — it’s a reflection of global shifts, especially in the US economy and monetary policy.

India should stay focused on:

Strengthening exports

Managing imports wisely

Maintaining stable macroeconomic policies

With the right steps, we can turn this challenge into an opportunity.

Written by

Lalan Choudhary

BPSC Rank 72

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