Rupee at record lows: Here is how rupee depreciation impacts import bill, crude oil & inflation

The Indian rupee weakened to an all-time low against the US dollar on Wednesday, as Nationalised banks kept buying US dollars at a higher level and foreign fund outflows continued. The weakness in the currency is primarily driven by a widening trade deficit, persistent FII outflows and a potential rate cut by the RBI. Though a weakening rupee is beneficial to certain export-oriented industries, it does not bode well for other import-related sectors. Further, it also puts strains on the balance of payments and prompts the central bank to intervene.

Here is how a single rupee devaluation could impact different economic parameters.

Rising import bill

Despite growing at 8.2% GDP growth, India continues to remain a net importer of major commodities like gold and crude oil. Analyst estimates suggest, crude oil and gold constitute nearly 25-30% of India’s total import bill. Despite the weakening rupee putting pressure on the import bill, services exports helped the current account deficit narrow in October. India’s current account deficit narrowed to $12.3 billion, or 1.3% of GDP, in the July–September 2025-26 quarter, down from a revised $20.8 billion, or 2.2% of GDP, in the same period last fiscal year. Earlier estimates by GTRI suggest that a single rupee devaluation adds $15 billion to the import bill.

Increasing crude oil

While a weakening rupee adds to the current account deficit, the key impact lies on the crude oil bill, which constitutes more than 10% of the total import bill. Analyst estimates suggest a single rupee depreciation adds ₹8000-₹10000 crore to the crude import bill, widening the current account deficit. Though the price impact is absorbed by importers at the initial stage, it impacts the margins of the importers at the same time. Experts also believe, a sharp depreciation rupee could also lead to rising fuel prices, thereby adding to inflation targets.

Inflation

The major pain point of a weakening rupee is inflation, as currency devaluation also leads to borrowed inflation. Analyst estimates suggest a single rupee devaluation in the currency adds to 0.2-0.3% to the inflation. In a scenario where the rupee depreciates rapidly, the RBI intervenes by controlling the liquidity of the rupee in the economy via qualitative or quantitative measures like raising interest rates or selling government securities. However, in the current scenario, when inflation is at a multi-quarter low and the RBI is expected to take a dovish stance to support growth, a weakening rupee could hinder the RBI's rate cut trajectory.

Amid weakening currency, the focus now shifts towards RBI policy and impending trade deal with the US. The foreign institutional investors sold equities worth ₹1.48 lakh crore in 2025 till date, NSDL data showed. Moreover, weak domestic equities and a lack of clarity on a trade deal with the United States have also added more pressure on the rupee. Meanwhile, investors are cautious as the three-day MPC meeting of the RBI begins today, and the interest rate decision will be declared on December 5, ahead of the Federal Reserve’s interest rate decision on December 10