The Indian rupee broke past the psychologically critical 90-per-USD mark on December 3, 2025, touching a record low of ₹90.14 against the U.S. dollar. The slide marked the sixth consecutive session of depreciation, underscoring how global pressures have outweighed India’s otherwise resilient domestic growth outlook. Despite “stronger-than-expected” economic expansion, the currency has been unable to withstand a combination of capital-flow stress, trade shocks, and policy uncertainty.
One of the sharpest drivers of the decline has been persistent foreign portfolio outflows. Overseas investors have withdrawn nearly US$17 billion from Indian equities this year, while FDI inflows and external commercial borrowings have stayed muted. This combination has strained India’s capital account, reducing the supply of dollars and amplifying currency pressure. At the same time, India’s trade deficit widened to over US$40 billion in October, reflecting a heavy import bill and subdued exports. With U.S. tariffs weighing on Indian goods and exporters holding on to dollars in anticipation of further rupee weakness, demand supply imbalances in the FX market continue to deepen.
Uncertainty around a U.S. – India trade deal has added to the strain. Washington’s punitive tariffs on Indian exports remain unresolved, dampening sentiment and keeping exporters cautious. Until there is clarity on tariff rollbacks or a trade agreement, the outlook for export recovery and therefore dollar supply, remains clouded.
Market participants also point to the RBI’s limited intervention. The central bank has opted for sporadic dollar sales, preferring to smooth volatility rather than defend a specific level. This measured approach aims to preserve foreign-exchange reserves while discouraging speculative attacks, but it also leaves the rupee more sensitive to external shocks.
Adding to the downward momentum is hedging demand from importers, who are rushing to secure dollars as the rupee weakens. Exporters, meanwhile, are delaying dollar conversions in expectation of even softer levels, further tightening liquidity.
Economists describe this moment as a case of macro divergence. India’s domestic economy appears strong — with robust GDP growth and improving activity indicators, but its external sector remains under severe stress. As a result, the rupee is acting as a shock absorber, adjusting downward to help the economy manage widening deficits and capital-flow volatility.
Looking ahead, analysts expect continued volatility. Some, including ANZ, predict the rupee may weaken further toward ₹91.30 by end 2026 if trade tensions with the U.S. persist. Others believe much of the negative news is already priced in and argue that any breakthrough in trade negotiations or improvement in capital flows could stabilize the currency.
For India, the pressure on the rupee has clear implications: costlier imports, potential inflationary spillovers, more cautious foreign investment, and limited relief for exporters navigating tariffs and sluggish global demand. The path forward now hinges largely on trade diplomacy, global risk appetite, and the pace at which capital flows return.