The Indian rupee has fallen sharply to ₹90.96 against the US dollar, marking its lowest level so far. This sudden decline has left investors and markets closely watching the situation, as global trade tensions and a strong US dollar continue to pressure emerging market currencies. At the same time, foreign investors have begun pulling money out of India, adding further strain on the rupee. What steps the Reserve Bank of India (RBI) may take next to manage the situation as of now is unkown. Meanwhile, let’s understand what currency depreciation and appreciation mean and why they matter.
It is important for anyone trying to make sense of economic news, exchange rates, international trade, or investments. Currency movements directly affect import prices, export demand, inflation, foreign investment, and even travel costs. When a currency loses value against another, it is called depreciation, and when it gains value, it is known as appreciation. These changes are a normal part of global financial systems and are influenced by multiple economic factors.
What Is Currency Depreciation?
Currency depreciation refers to a decline in the value of a country’s currency relative to another currency in a floating exchange rate system. Simply put, when you need more of your local currency to buy one unit of a foreign currency, your currency has depreciated.
For example, if ₹80 was earlier equal to 1 US dollar and now ₹85 is needed for the same dollar, the Indian rupee has depreciated.
Reasons for Currency Depreciation
- Higher inflation compared to other countries
- Trade deficits (imports exceeding exports)
- Foreign investors pulling money out
- Lower interest rates
- Stronger demand for foreign currencies
Depreciation can make imports expensive and push inflation higher. However, it can benefit exporters, as their goods become cheaper for foreign buyers.
What Is Currency Appreciation?
Currency appreciation happens when a country’s currency increases in value compared to another currency. In this case, less local currency is required to buy a unit of foreign currency.
For instance, if ₹80 was earlier required to buy 1 US dollar and later only ₹75 is needed, the rupee has appreciated.
Reasons for Currency Appreciation
- Strong economic growth
- Higher interest rates attracting foreign capital
- Increased exports or trade surplus
- High foreign investment inflows
- Positive market sentiment
Appreciation improves purchasing power and makes imports cheaper, but it can reduce export competitiveness.
Key Differences Between Depreciation and Appreciation
| Aspect | Currency Depreciation | Currency Appreciation |
|---|---|---|
| Meaning | Currency value falls | Currency value rises |
| Import Costs | Increase | Decrease |
| Export Competitiveness | Improves | Declines |
| Impact on Inflation | Inflation may rise | Inflation may reduce |
| Effect on Investors | Can discourage inflows | Attracts foreign capital |
How Currency Movements Are Measured
Currency depreciation and appreciation are measured using exchange rates. Exchange rates fluctuate daily based on demand and supply in the foreign exchange market. Factors such as inflation data, interest rate decisions, geopolitical events, and global economic conditions play a major role in influencing currency values.
Recent News on Currency Movements
In recent months, currency movements have been in focus globally. The Indian rupee has weakened against the US dollar, touching record low levels due to a strong dollar, global uncertainty, and continued foreign portfolio outflows. Rising crude oil prices and geopolitical tensions have also added pressure on emerging market currencies, including India.
At the same time, several global analysts expect the rupee to recover gradually over the medium term, supported by India’s economic growth outlook, improving domestic demand, and potential stabilisation in global interest rates. This highlights how currencies can move between phases of depreciation and appreciation depending on economic conditions.
Impact of Currency Depreciation and Appreciation
Consumers
- Depreciation makes imported goods, fuel, electronics, and foreign travel more expensive
- Appreciation reduces the cost of imports and overseas education or travel
Businesses
- Export-oriented businesses benefit from depreciation
- Companies dependent on imported raw materials face higher costs during depreciation
Investors
- Currency depreciation can reduce returns on foreign investments
- Currency appreciation can improve overseas investment returns
Why Understanding Currency Movements Matters
Currency depreciation and appreciation affect everyday life more than most people realise. From fuel prices and smartphone costs to stock markets and international investments, currency movements influence financial decisions at every level. For businesses, governments, and individuals alike, tracking exchange rate trends helps in better planning and risk management.
Final Thoughts
Knowing What Is Currency Depreciation and Appreciation helps you understand why exchange rates change and how those changes impact the economy, businesses, and personal finances. With recent news highlighting the rupee’s depreciation and expectations of future appreciation, it’s clear that currency values are dynamic and shaped by both domestic and global forces. Staying informed about these movements allows individuals and investors to make smarter, more aware financial decisions while navigating an interconnected global economy.
