Prelims Economy Rupee | UPSC Updates | Qualify IAS

Value of Rupee (₹)

Determined by demand and supply in the foreign exchange market

System: Managed float under Reserve Bank of India (RBI intervenes when needed)

Key Drivers

1. Trade Balance

More exports → demand for ₹ ↑ → appreciation

More imports → demand for $ ↑ → ₹ depreciates

2. Capital Flows (FII/FDI)

Inflows → ₹ strengthens

Outflows → ₹ weakens

3. Inflation

Higher inflation in India → ₹ loses value

4. Interest RatesHigher rates → attract foreign investors → ₹ appreciates

5. RBI Intervention

Buys/sells dollars to stabilize excessive volatility

“Rupee value is market-determined by forex demand–supply, with RBI managing volatility under a controlled float system.”