Rupee Under Pressure: Why Rupee Under Pressure Fragile Five Era Comparison Matters

Rupee under Pressure Latest News

• The Indian rupee has depreciated sharply, touching an all-time low of ₹95.33 against the US dollar on April 30, 2026, meaning it now takes over ₹95 to buy one dollar. 
• This marks a steep decline compared to the beginning of 2026, when the exchange rate was around ₹90 per dollar, and less than ₹85 a year ago. 
• Overall, the rupee has fallen by about 12% in just 12 months, significantly higher than its typical annual depreciation of 3–4%. 
• The magnitude of this fall is reminiscent of the 2013 currency crisis, when the rupee similarly weakened by around 12% within a short span, indicating heightened pressure on the currency in recent times.

‘Fragile Five’ Economies and Currency Depreciation

• In 2013, a leading global financial services firm Morgan Stanley identified five emerging market economies—India, Indonesia, Brazil, South Africa, and Turkey—as the “Fragile Five” due to their vulnerable currencies. 
• During this period, their currencies saw sharp declines against the US dollar, including the Indian rupee, Indonesian rupiah, Brazilian real, South African rand, and Turkish lira.

Role of US Monetary Policy 

• The primary trigger behind this depreciation was the rollback of Quantitative Easing (QE) by the Federal Reserve. 
• Under QE, low interest rates in the US encouraged investors to borrow cheaply in dollars and invest in higher-yielding emerging markets. 
• However, when the US signalled tightening of monetary policy, capital flows reversed as investors shifted funds back to safer US assets like government bonds.

Underlying Structural Weakness

• These economies were particularly affected because they ran current account deficits—importing more than they exported—and relied heavily on foreign capital inflows to finance this gap. 
• When global investment flows reversed, the demand for their currencies fell sharply relative to the US dollar, leading to significant depreciation.

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Rupee in 2026: Revisiting the ‘Fragile Five’ Comparison

• While India has projected itself as a leading global economy, even reaching the top five in GDP rankings in recent years, recent trends show renewed pressure on the rupee. 
• Over the past 12 months, the Indian currency has depreciated by about 12.1% against the US dollar, making it the second-worst performer among the original “Fragile Five” economies.

Comparative Performance of Other Economies

• Unlike 2013, the current scenario shows divergence among these economies. 
• Brazil and South Africa have witnessed currency appreciation—around 12% and 10% respectively—indicating stronger external positions or capital flows. 
• Indonesia has experienced only a modest depreciation of about 4%, suggesting relative stability.
• Turkey remains the worst performer, with its currency—the lira—falling by 17% in the past year. 
  • More significantly, the lira has undergone a prolonged crisis, losing over 1000% of its value since 2018, highlighting deep structural economic issues.

Rupee Depreciation: Comparing 2026 with the 2013 Crisis

• The rupee’s fall in 2026 closely mirrors the decline seen during the 2013 crisis in terms of scale. 
• It depreciated by about 9.6% in FY 2025–26, almost identical to the 9.5% fall recorded in FY 2013–14. 
• However, a key difference lies in the trend: the 2013 decline came after consecutive sharp falls in the preceding two years (around 13% in FY12 and 6% in FY13), whereas the recent depreciation followed a period of relatively moderate currency movement.

Underlying External Sector Pressures

• The drivers of the current depreciation resemble those of 2013, particularly in terms of balance of payments stress. 
• Both periods witnessed a widening current account deficit, indicating higher outflows on imports of goods and services. 
• At the same time, the capital account also weakened, with reduced or negative inflows, reflecting capital outflows from the economy.
• The simultaneous occurrence of deficits in both current and capital accounts created significant pressure on the rupee in both periods. 
• This meant that not only was India spending more foreign exchange on imports, but it was also losing capital to global markets, intensifying the currency’s decline.

Role of Forex Reserves

• In such situations, the only buffer available is the drawdown of foreign exchange reserves. 
• As in 2013, India has had to rely on its reserves to manage the imbalance between inflows and outflows, highlighting the structural similarity between the two episodes despite differences in preceding trends.

Source: IE