Rupee at 90 to the dollar: Why the rupee continues to depreciate and how it impacts you

The Indian rupee slipped again on Wednesday, breaching the psychological mark of 90 per US dollar to a fresh record low. Over the past few days, the Reserve Bank of India has regularly intervened in the forex market trying to arrest the volatility, but the rupee has continued its fall for past five consecutive sessions, and hit a record low of 90.25 against the greenback today.

What is driving the rupee depreciation?

As the dollar index strengthens, rupee typically weakens as do other currencies. But right now, the US dollar index has slipped below 100, signalling its weakness. Still, the rupee has continued to fall against the dollar. There are multiple reasons that are exerting the pressure on rupee.

A key reason has been sustained outflows from equity markets by foreign institutional investors. Up to December 2, foreign portfolio investors have sold over Rs 1.48 lakh crore from equity market in 2025. When FIIs sell Indian stocks and pull out money, the demand for US dollar increases and in turn puts pressure on the rupee.

Another key reason behind the rupee slump has been ongoing uncertainty around US tariffs. Earlier this year, the US administration imposed additional tariffs on Indian imports, for what it said was a penalty for buying Russian oil. Cumulatively, Indian imports are now levied a 50 per cent import tariff, putting India at a significant disadvantage to other export oriented countries including China.

US and India have been negotiating a bilateral trade deal for some time now, but there hasn’t been a breakthrough yet. Officials in recent days have said that negotiations have advanced significantly. Even US President Donald Trump said a deal was close.

The market expectation is now that at least a part of the deal will be done before the year ends. But, there remains a lot of uncertainty around it and whether the contours of the deal will ultimately be beneficial to India. That uncertainty also puts continued pressure on the rupee.

“India remains one of the few major economies without a trade pact with the US, though officials are optimistic about finalising an agreement soon. The prolonged delay has contributed to the rupee’s 5 per cent decline this year, its sharpest annual fall since 2022,” pointed out Jigar Trivedi, senior research analyst at Reliance Securities.

The rupee has been among Asia’s weakest performers, as steep US tariffs on Indian goods hurt exports to its largest market and have dampened foreign investor appetite for Indian equities, he said.

“Slow export growth, uncertainty around trade deal, and continued foreign investor outflows have all pushed demand for the dollar higher,” said Rahul Kalantri, vice-president commodities at Mehta Equities.

Also, escalating geopolitical tension and the crash in cryptocurrencies have driven safe haven flows into dollar, weighing on the rupee, according to him.

India’s merchandise trade deficit hit a massive $41.7 billion in October 2025. Imports soared to all-time high of $76.1 billion, 16.6 per cent year-on-year increase, mainly driven by surging gold imports for the festive season. That also increased dollar demand from import dependent industries, and put pressure on the rupee.

Widespread impact

The continued depreciation in the rupee will have a wide-ranging impact, from the Dalal Street to foreign exchange trader to even the common man.

India imports 90 per cent of its crude oil requirements. A major requirement of our edible oil needs is also met through imports. A weak rupee means importing oil becomes that much more expensive.

Similarly, imported electronic parts or finished goods like laptops, imported phones and other gadgets also cost more.

If you are a student studying abroad, then your tuition and other expenses are also becoming dearer. For instance, if you were spending $75,000, it would have cost you Rs 56.25 lakh, five years ago when the rupee was at 75 against the dollar. Now at 90, it will cost you Rs 67.50 lakh, which is a sizeable increase, especially for middle-class families.

If any individual or a corporate had availed a dollar loan, repaying that would also get expensive in rupee terms. Similarly, your planned vacation abroad also becomes that much imore expensive. If a trip cost $5,000 in 2020, you would have had to spend Rs 3.75 lakh with the rupee at 75. Now, with the rupee at 90, it will cost you Rs 4.50 lakh.

Exporters typically benefit from a falling rupee, as it makes Indian products and services abroad much more competitive. However, shipments to the US, India’s largest export market, have already been under pressure, due to the steep tariffs imposed. Over September-October, exports to the US have contracted 10 per cent from a year ago.

The falling rupee can also benefit services exports like business process outsourcing and software services. But, that gets offset where ever companies have higher imports, which become expensive. As such, demand for IT services has been slow for some time now due to sluggish tech spending by global corporations amid geopolitical tensions and tariff-related uncertainties.

The Reserve Bank of India’s monetary policy committee meets this week. While, a record low inflation will give it comfort, the sharp fall in the rupee will be a concern. RBI Governor Sanjay Malhotra has said in the past that the central bank doesn’t target any specific level for the rupee. But, with the rupee at record low, all eyes will be on what steps it takes going ahead and whether it will allow a gradual depreciation or aggressively intervene.

What experts say?

The sustained weakness in the rupee and a strong GDP growth in the September quarter have reduced hopes of a repo rate cut in the MPC meet, said Trivedi of Reliance Securities.

Nilesh Shah, the managing director of Kotak Mahindra Asset Management says the rupee will have to keep depreciating to keep our exports competitive.

“Currency is like a pendulum. It swings both ways on the extreme and comes somewhere in the middle. Its difficult to figure where the rupee will bottom out, but in our forecast we think the depreciation of 2-3 per cent of rupee every year is needed to maintain our export competitiveness. The real effective exchange rate model also suggests 2-3 per cent depreciation every year,” pointed Shah.

Madan Sabnavis, chief economist at Bank of Baroda, feels there should be some pullback to 88-89 levels post the MPC meeting. The dollar should also get weaker in 2026, if the US Federal Reserve continues to cut interest rates, he added. But whether the rupee strengthen is anybody’s guess. Will a trade deal happen and will it favour India, will foreign institutional investors return back in large numbers in 2026, is something to watch out for.

Kalantri of Mehta Equities expects the rupee to remain volatile this week and likely move in the 89.10 to 90.85 to a dollar range.