Rupee Slides Past ₹90 Per Dollar Amid Worsening External Pressures

Why in the News?

India’s rupee breached the ₹90-per-dollar mark for the first time, rattling financial markets and deepening concerns about the country’s external sector outlook. The currency has already weakened over 5% in 2025, signaling sustained domestic and global pressures, including a strong US dollar, widening trade deficit, and uncertainty around the India–US trade agreement.

Rupee Declines Beyond ₹90 Per Dollar

A Psychological Threshold Broken

The rupee’s fall below ₹90—a key psychological and technical barrier—has prompted concerns of further depreciation toward ₹91–92, as automated buy-stop orders get triggered in currency markets.

Domestic Fundamentals Remain Strong, Yet Rupee Falls

Despite several positive macro indicators:

• Easing crude oil prices
• Inflation falling below 1%
• 8.2% GDP growth in Q2
  the rupee continues weakening, highlighting a sharp disconnect between domestic fundamentals and external sector dynamics.

Why Is the Rupee Weakening?

• Strong US dollar
• Foreign investor outflows
• Trade deficit widening
• Uncertainty over tariff conditions with the US
• High festive-season gold imports
• Market sentiment turning risk-averse

India’s Trade Deficit Shows Strong Signs of Widening

Export Decline

India’s merchandise exports declined 11.8% YoY in October 2025 to $34.4 billion, driven by:

• Lower shipments to the US
• Higher US tariffs
• Weak global demand
• A high base effect from 2024

Import Surge

Imports rose 16.6% YoY to a record $76.1 billion, led by:

• Electronics
• Crude oil
• Machinery
• Gold, which tripled to $14.7 billion

Why Is the Trade Gap Widening?

• Weak export competitiveness
• Tariff disadvantages in key markets
• Strong domestic demand for imported goods
• Global slowdown affecting Indian products

Impact on the Rupee

A widening trade deficit increases demand for dollars and puts persistent downward pressure on the rupee, worsening the balance-of-payments situation.

Delayed India–US Trade Agreement Adds Further Pressure

Markets remain uneasy due to the lack of clarity on the long-awaited India–US Trade Agreement.

Without a Trade Deal:

• Indian exporters face higher tariffs
• Competitiveness erodes
• Markets expect rupee depreciation to “offset tariff disadvantages”
• Import conditions remain uncertain

Until the agreement is finalized, the rupee is likely to remain under pressure as a “market-adjusted shock absorber.”

Foreign Investors Continue to Exit Indian Markets

FPI Outflows Since January 2025:

Foreign Portfolio Investors have pulled out ₹1.48 lakh crore, citing:

• Global profit-booking
• Better returns in other emerging markets
• India’s relatively weaker market performance

Why FPIs Are Selling Despite Strong Macro Indicators?

• Indian equities have underperformed global peers
• Valuations remain high
• Global investors are reallocating to higher-yield markets
• India being used as a “liquidity source”

Persistent FPI selling raises dollar demand, accelerating rupee depreciation.

Is RBI Letting the Rupee Slide?

Soft-Touch RBI Strategy

Economists suggest that RBI is not actively weakening the rupee, but is allowing it to move with global trends while curbing excess volatility.

Why RBI Isn’t Aggressively Intervening?

• Its forward book is already heavily drawn down
• Intervening too heavily can drain reserves
• Excess defence of the rupee can attract IMF criticism
• Allowing depreciation can support exports during trade stress

Behavioural Market Factors

• Importers rushing to buy dollars
• Exporters waiting for a weaker rupee to maximize returns
• Dollar index holding below 100

RBI appears to be striking a balance: letting the rupee find its level while preventing disorderly volatility.