The Reserve Bank of India will tolerate a weaker rupee as the country's external sector confronts multiple headwinds including a wider trade gap and stalling of dollar inflows, Reuters quoted three sources as saying on Thursday, even as Congress president Mallikarjun Kharge quipped that the falling value of the rupee shows the real economic situation under Prime Minister Narendra Modi.
The rupee slumped 28 paise to an all-time low of 90.43 against the US dollar in early trade on Thursday.
"The rupee has already crossed 90 today,” Kharge wrote in a post in Hindi on X (formerly Twitter).
“No matter how much the government beats the drum, the falling value of the rupee shows what the country's real economic situation is. If the Modi government's policies were right, the rupee wouldn't fall!"
"Before 2014, Modi ji said - 'What is the reason that India's rupee is getting 'patla (losing its value)', you will have to answer this. The country is demanding an answer from you'. Today, we are asking Modi ji the same question. He will have to answer," Kharge said.
Earlier, speaking with reporters in Parliament, Kharge said since the value of the rupee is declining, it means that the economic situation of the country is not good.
"They keep saying that we are developing and our economic situation is good but when the value of rupee declines we get to know what the real economic situation is," he said.
On Wednesday, the rupee breached the 90-a-dollar level for the first time to settle at a fresh all-time low of 90.15 against the greenback.
The RBI, which had supported the rupee through aggressive interventions via dollar sales until last month, has allowed the rupee to fall 1.3 per cent in the last seven trading sessions.
The rupee, down 5.5 per cent on year, is Asia's worst performing currency.
By signaling tolerance for a weaker rupee, the RBI is indicating that it will intervene mostly to curb sharp volatility or on any signs of a speculative build-up but not defend any specific level on the rupee, the sources told Reuters.
The RBI did not immediately respond to a Reuters email seeking comment.
India is one of the worst-hit markets in terms of outflows, with foreign investors selling stocks amounting to $17 billion so far this year. At the same time, foreign direct investment, trade, and offshore fundraising flows have slowed down.
A weaker currency provides more policy flexibility to the RBI, but it could also diminish the appeal of Indian assets for overseas investors.
"A weakening Indian rupee is definitely a negative when it comes to investing in Indian equities and it is one reason why we are only neutral weight in India versus our benchmark," said Sam Kongrad, an investment manager for Asian equities at Jupiter Asset Management.
MSCI's India equities index has risen 7 per cent this year, but currency weakness has trimmed its dollar returns to under 2 per cent — well below the roughly 80% and 30% gains posted by South Korea and Hong Kong, respectively.
"A resolution to the tariff situation with the US can’t come soon enough and foreign flows from a potential global index inclusion will be very much needed," said Kenneth Akintewe, head of Asian sovereign debt at Aberdeen Investments.
Over the long term, though, investors reckon sustained momentum in India's blockbuster economic growth could help offset the currency's fall by boosting company earnings.
"I'm not losing sleep over it," chief economic advisor V. Anantha Nageswaran said on Wednesday, referring to the rupee's fall.
The rupee's weakness has had no impact on inflation, he added, expecting the currency to recover in 2026.
