The Morning Brief How Will a Volatile ₹ Impact You in 2026?
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Dec 26, 2025 In a compelling discussion, Madan Sabnavis, Chief Economist at Bank of Baroda, reveals how the Indian rupee's volatility affects households across the country. With the rupee toppling even amidst strong GDP growth, he highlights the lag in import costs and their impact on consumer prices. Sabnavis cautions that short-term swings hurt more than gradual declines, and shares insights on hedging strategies for importing firms. He also discusses the critical role of US trade talks in determining the rupee's future, offering listeners a thought-provoking look at India's economic landscape.
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Rupee's Drop Is A Household Issue
- The rupee became Asia's worst-performing currency in 2025 amid heavy FPI outflows and trade uncertainty.
- This decline matters beyond markets because it raises everyday costs for Indian households.
Import Costs Feed Inflation With A Lag
- Depreciation raises import costs and transmits partially into consumer prices with a lag.
- A 10% FX move might add roughly 0.4–0.5% to CPI if fully passed through.
Expect Delayed Price Effects — Hedge If Exposed
- Don't assume immediate price rises; hedging and rate averaging delay transmission.
- Watch for a new normal exchange rate before expecting sustained household price increases.