Why in 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.

What’s in Today’s Article?

• ‘Fragile Five’ Economies and Currency Depreciation
• Rupee in 2026: Revisiting the ‘Fragile Five’ Comparison
• Rupee Depreciation: Comparing 2026 with the 2013 Crisis

‘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.

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.