Rupee retreats after central bank cuts rates

The rupee gave up early gains on Friday (December 5, 2025) after the Reserve Bank of India (RBI) cut the interest rate by 25 basis points, in line with a consensus view that had albeit softened due to a stronger-than-expected economic growth and the currency’s recent slide.

The rupee fell to 89.92 after the policy decision was announced, down from 89.78 before the announcement. The rupee has declined 5% over the year so far and is Asia’s worst-performing currency.

Weakness in trade and capital flows has bogged down the rupee this year, with the drag compounded by steep U.S. trade tariffs, pushing the currency below the 90 per dollar mark.

A majority of economists in a Reuters poll conducted ahead of last week’s gross domestic product data had expected the repo rate to be lowered by a quarter point at the policy meeting, followed by a pause through 2026.

However, some analysts and market participants had pared rate cut bets after data showed the South Asian economy expanded at a sharper-than-expected clip of 8.2% in the July-September quarter.

The RBI also took steps to boost liquidity in country’s banking sector to support what the Governor Sanjay Malhotra defined as a “goldilocks economy”.