Rupee's worst performance since 2013 taper tantrum: how worrying is the decline?

trade deficit and high gold imports.The impact of the war-led disruptions—built on top of the calibrated depreciation—pushed the rupee towards a level not previously anticipated. Even then, economists believe that the RBI should not defend the rupee too much as it may provide temporary relief, but could stoke sharper depreciation later."If this is a long-drawn-out crisis, you want to preserve your forex reserves because when we got into trouble in 2013, our reserves went down, then the taper tantrum made it worse," said Gaura Sengupta, chief economist at IDFCFirst Bank.Forex reserves declined 3.4% and 0.6% in FY12 and FY13, but failed to arrest the rupee’s decline.

In total, the rupee declined nearly 30% between FY12 and FY14 as the taper tantrum also hit India."RBI letting the rupee go a bit now is a good thing; it is needed as a strategy to survive a slightly elongated crisis,” Sengupta added.During the pre-war period in FY26, the rupee was allowed to depreciate and find its own level, with little intervention from the RBI. This, however, changed as the Iran war exposed India to one of its worst energy crises.

In the first three weeks of March, reserves have declined by about 4.2%, a sharp reversal from gains of 0.7% in February and 3.9% in January. This marks the steepest drawdown since September 2022, when reserves fell during the Russia-Ukraine war shock.As a result, the rupee's performance during the one-month war period isn’t the worst among its emerging market peers.

Mint's analysis of currency movement since February 27 shows that while the rupee has depreciated sharply, several peers have been hit much harder. Currencies such as the Thai baht, Philippine peso, and Mexican peso have seen sharper declines.