If we take into account 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 another lifetime low on Tuesday, losing 5.2 percent so far this year, it also emerged as one of the most undervalued emerging market currencies. As the real effective exchange rate (REER) of the rupee as calculated by the Bank of International Settlements reached 94.95 on October 30, 2025, this index is currently at a level last reached in September 2018.
The REER is a country’s weighted average exchange rate relative to a basket of other currencies, adjusted for inflation. A REER below 100 means the rupee is undervalued and a value above 100 means it is overvalued. The broad-based REER calculated by the Bank of International Settlements calculates the relative value of the rupee against 64 other currencies.
Lose even more ground
The rupee’s REER was above 100 until February 2025. But the onset of the trade war has pushed it below 100 as the rupee lost more ground compared to other emerging market currencies. The lowest recent level was reached in March 2023 when the REER was at 96.06.
“The fall in the rupee is mainly due to a very strong US dollar, India-specific trade shocks and weaker foreign inflows. The RBI has also allowed more currency flexibility this year and intervened less aggressively than in previous periods of volatility,” says Akshat Garg, head of research and product at Choice Wealth.
REER the trading partner
The rupee’s REER is well below that of other emerging market currencies such as the Mexican peso (REER of 130.1), the Russian ruble (117.1) and the Brazilian real (109.7), which experienced strong appreciation against the dollar in 2025.
However, some currencies such as the Indonesian rupiah (94.19), the South Korean won (89.09) and the Chinese renminbi (87.94) are more undervalued than the rupee.
“Currency devaluation is good for exporters like IT and pharma. A negative effect is ‘imported inflation’. But that is not a cause for concern now as India’s CPI inflation is at a record low of 0.25 per cent,” said VK Vijayakumar, chief investment strategist, Geojit Investments.
Not the worst year
If we take into account the annual change in the rupee against the dollar, 2025 is a difficult but not exceptional year. The rupee’s year-to-date depreciation of 5.05 percent in 2025 is well below the declines of 11.3 percent in 2022, 12.37 percent in 2013 and 18.7 percent in 2011.
Published on December 2, 2025