Even without getting into any quantitative measure of vulnerability, it is quite clear that the rupee is under pressure. In the last one year, it depreciated by over 10%, has crossed the psychological marker of ₹80 to a dollar, and India’s foreign exchange reserves are down by more than $100 billion.
The rupee is falling on account of two factors. The first is the widening current account deficit, mainly owing to the rise in the price of oil triggered by the Ukraine war. And the second is capital outflows, driven by a strengthening dollar on the back of aggressive rate hikes by the U.S. Federal Reserve.
