If we consider the annual change in the rupee against the dollar, 2025 is a difficult but not exceptional year.
| Photo Credit:
Rasi Bhadramani
As the rupee hit yet another life-time low on Tuesday, losing 5.2 per cent so far this year, it has also emerged one of the most undervalued emerging market currencies. With the rupee’s real effective exchange rate (REER), as computed by the Bank of International Settlement, hitting 94.95 on October 30, 2025, this index is currently at levels last seen in September 2018.
The REER is weighted average exchange rate of a country, in relation to a basket of other currencies, adjusted for inflation. REER below 100 implies that the rupee is undervalued and a value above 100 means it is overvalued. The broad-based REER computed by the Bank of International Settlement calculates the relative value of the rupee against 64 other currencies.
Losing more ground
The rupee REER was above 100 until February 2025. But the onset of the trade war has pulled it below the 100 level, as rupee lost more ground compared with other EM currencies. The lowest level in recent times was in March 2023, when in recorded REER of 96.06.
“The rupee’s slide is mainly a story of a very strong US dollar, India‑specific trade shocks and softer foreign inflows. The RBI has also allowed more currency flexibility this year, intervening less aggressively than in earlier bouts of volatility,” says Akshat Garg, Head Research and Product, Choice Wealth.
REER of trading partners
Rupee’s REER is far below other EM currencies such as the Mexican Peso (REER of 130.1), Russian Ruble (117.1) and Brazilian Real (109.7) which witnessed sharp appreciation against the dollar in 2025.
However, some currencies such as Indonesia’s rupiah (94.19), South Korean Won (89.09) and Chinese Renminbi (87.94) are more undervalued than the rupee.
“Depreciating currency is good for exporters like IT and pharmaceuticals. A negative fallout is ‘imported inflation’. But this is not a concern now since CPI inflation in India is at record low 0.25 per cent,” says V K Vijayakumar, Chief Investment Strategist, Geojit Investments.
Not the worst year
If we consider the annual change in the rupee against the dollar, 2025 is a difficult but not exceptional year. The rupee’s YTD depreciation of 5.05 per cent in 2025 is well below the decline of 11.3 per cent in 2022, 12.37 per cent in 2013 and 18.7 per cent in 2011.
Published on December 2, 2025
