The rupee continues to weaken against the US Dollar, and slipped 28 paise on Thursday morning to touch another all-time low of 90.43. The slump comes amid a sustained sell-off in the equity market by foreign institutional investors and the ongoing uncertainty about when the US-India bilateral trade will be signed.
Typically, over the long term, the rupee has depreciated around 3-4 per cent each year against the US dollar, primarily due to higher inflation in India compared to the US. India’s overall trade deficit also weighs. But, year-to-date, the rupee has dropped more than 5 per cent against the greenback and is now the worst-performing currency in Asia.
The RBI has been intervening periodically to curb the volatility in the forex market and shore up the rupee. Still, the rupee has fallen from 85 to the dollar to over 90 now in little under a year. The ongoing sell-off by FIIs in the equity market adds to the pressure on the rupee as dollar demand rises.
So far in 2025, up to December 3, foreign portfolio investors have sold over Rs 1.52 lakh crore in the Indian equity market. In contrast, in 2024, FPIs were net buyers, albeit marginally, at Rs 427 crore. In the first three months of December alone, FPIs have sold Rs 8,369 crore worth of equity, which is significantly more than the Rs 3,765 crore they pulled out in the entire month of November.
According to analysts at Elara Capital, there were several short-term headwinds that emerged simultaneously.
“The RBI’s stance of limiting its intervention played its part amid nervousness regarding India-US trade deal and continued selling by FPIs in the face of a surge in trade deficit,” they said.
Globally, firmer Japanese bond yields are also creating uncertainties in the Asian forex market, they added.
Another important development, the Elara analysts point out, is that RBI interventions in the market have been less active of late. Their analysis points out that the RBI had been a net seller of dollars to the extent of $20 billion between January and September 2025, while they had sold $36.7 billion in June-December 2024.
RBI may have been limiting its interventions lately in the currency market, “perhaps allowing rupee depreciation as a line of defence in the face of higher tariffs on exports to the US,” they feel.
The US levies a 50 per cent import tariff on Indian imports, putting the country at a significant disadvantage to other export-oriented countries, including China. While officials have said in recent weeks that negotiations have advanced and a deal is close, there is still a lot of uncertainty on when it will eventually get done, what its contours will be and whether it’s a favourable deal for India.
Soumya Kanti Ghosh, group chief economic adviser at State Bank of India, noted that while the rupee was the most depreciated currency among select major economies, the rupee was among the least volatile currencies since April this year, according to an analysis of the coefficient of variation.
“The high slab of 50 per cent tariff imposed on India, substantially higher than peers like China (30 per cent), Vietnam (20 per cent), Indonesia (19 per cent) and Japan (15 per cent), is one of the major factors behind current phase, notwithstanding evident efforts on Indian exports diversification and free trade agreements, said Ghosh.
Some $45 billion worth of major Indian exports are expected to be impacted by the US tariff, mostly in labour-intensive areas, he said.
India’s foreign exchange reserves reached $703 billion in June 2025, but declined to $688 billion for the week ended November 21, 2025.
Ghosh stressed that the rupee depreciation should have a central place and focus of the ongoing monetary policy committee meeting of the RBI, and he doesn’t expect the MPC to reduce the policy repo rate now. Rather, he feels, the RBI would give further clarity on liquidity measures.
Radhika Rao, executive director and senior economist at DBS Bank, was expecting a modest interest rate cut this week on the back of the low inflation and its trajectory for the current financial year, which is running 50-60 bps below the RBI’s projection. But the rupee’s sharp move this week has now injected uncertainty in the rate decision, she said.
“Equal importance will be given to the policy guidance, where the MPC might leave the door open for further action if external conditions deteriorate further, preventing a re-hardening in borrowing costs,” said Rao.
The committee is expected to refrain from providing any directional cues on the currency, instead emphasising the preference to minimise volatility, she added. The MPC meeting began on Tuesday, and its key decisions will be announced on Friday morning.
