Last Wednesday, the rupee slipped past the ₹90 per dollar mark. While this drop is labelled as ‘psychologically significant,’ the underlying economic factors haven’t changed much. Yet a specific set of recent events has added fresh momentum, decisively tipping the scales against the currency.
The rupee’s rise or fall depends on two main factors: what’s happening in the market, and how the Reserve Bank of India (RBI) responds.
Some of the major movements in the market that are weakening the rupee include pressure on exports owing to U.S. tariffs; a sudden surge in gold and silver imports adding weight to the ballooning import bill; and most importantly Foreign Portfolio Investors (FPIs) pulling out in large numbers from Indian equity.
And what is the RBI doing? Till just a year ago, the RBI was firefighting by selling dollars to help arrest the slide of the rupee. But this year the RBI has changed its tactics. They have decided to intervene less and less and let the rupee seek its own level. More than market dynamics, this change in RBI’s tack has allowed the rupee to breach the 90 mark.
Exports sliding
First, exports. The 50% tariff on Indian goods announced by U.S. President Donald Trump has had a tangible, bruising impact. When Indian goods became 50% more expensive for American buyers, demand dropped and exporters earned fewer dollars, creating a scarcity that drove the rupee down.
The damage is visible in recent data. Exports to the U.S.— India’s largest partner — fell by over 12% in September and 9% in October this year, dragging total monthly exports down by nearly 12% year-on-year in October 2025.
Yet, a wider lens reveals a surprising resilience. Despite the U.S. slump, cumulative exports for the April-to-October period actually rose marginally by 0.5% to $253.8 billion in 2025, compared to 2024. This divergence suggests that while the U.S. door is closing, Indian exporters are finding windows elsewhere.
It is this resilience that leads economists like Dr. Pronab Sen to downplay the panic. ‘It’s not just the trade deficit with the U.S., it’s the overall trade position,’ Dr. Sen argues, noting that the export decline is not large because ‘we’ve made up in other countries.’
However, historical data offers little comfort for the future. Warning signs for November are flashing red: India’s manufacturing Purchasing Managers’ Index (PMI) has fallen to a nine-month low, and the new export orders sub-index has slipped to a 13-month low, suggesting the worst of the tariff pain may be yet to come.
Imports surging
Second, imports. While falling exports are a concern, a massive surge in precious metal imports have also played a role in the depreciation of the rupee.
In September and October, Indian purchases went vertical. Data shows that gold imports skyrocketed by roughly 200% year-on-year in October to hit nearly $14.7 billion. Silver imports were even more dramatic, surging by 528% to $2.7 billion. Despite record-high global prices, importers aggressively stocked up — paying premiums in September and October — driven by both the festive season demand and a domestic flight to safe-haven assets.
Dr. Sen diagnoses this specific frenzy not as typical festive consumption, but as a classic ‘flight to safety.’ ‘It’s not that we suddenly developed a fascination for gold,’ Dr. Sen explains. ‘But what we’ve seen recently is an unexpected surge because people are worried about alternative assets.’ He argues that domestic investors, spooked by volatility, are pulling money out of the stock market and parking it in bullion.
Economically, this created a ‘dollar drain.’ To finance these massive purchases, businesses sold rupees to buy dollars, flooding the market with local currency. Thus, the rupee’s depreciation was driven less by the tariff hit to exports and more by this structural trade imbalance — the chronic necessity to spend dollars on imports such as gold and silver.
FPI flight
Third is Foreign Portfolio Investors (FPIs) — the global heavyweights who pour money into Indian stocks. By December 3, these investors had pulled out a staggering $17 billion from Indian equities in 2025 alone (Chart 3). This marks the highest calendar-year outflow in at least two decades, surpassing the sell-offs of 2022 and 2008. When foreign investors leave, they sell rupees to take their dollars home. On this front, 2025 has been exceptionally harsh, accelerating the currency’s weakness.
These combined forces — stalling exports, surging imports, and fleeing capital — explain why there is immense pressure on the rupee. But they don’t fully explain why the rupee breached the 90 mark.
As economist Dr. Zico Dasgupta argues, market pressure is merely the fuel; the central bank determines whether to let it burn. ‘I would like to distinguish between the deterioration of current account and capital account flows and the slide of the rupee,’ Dr. Dasgupta says. ‘All three factors that you mentioned have contributed to the deterioration of the current and capital account flows, putting adverse pressure on foreign exchange reserves.’
However, he notes that the currency’s actual value is a policy decision. ‘The slide of the rupee reflects RBI’s present policy of maintaining a managed-float,’ Dr Dasgupta explains. ‘This is in contrast to RBI’s earlier policy between mid-2022 and late 2024, when it largely kept the dollar exchange rate unchanged despite a negative pressure on the current account and capital account.”
What did RBI do?
To understand the rupee’s current trajectory, it is essential to analyse the central bank’s actual market activity. The definitive record of this intervention is found in the Balance of Payments data, specifically under ‘Reserve Assets.’ In this accounting framework, the signs indicate the direction of flow: a negative figure means the central bank is buying dollars to increase reserves, while a positive figure means it is selling dollars to support the currency. By tracking these net flows from 2022 through late 2025, the data reveals a clear shift in strategy — from active defense to a significant reduction in market intervention.
Data confirms this calibration. In previous high-pressure episodes, the central bank aggressively defended the currency, selling over $30 billion in the quarter ending September 2022 and nearly $38 billion in the quarter ending December 2024.
By comparison, the RBI’s hand is now much lighter. In the quarter ending September 2025, amid similar turmoil, the central bank sold just $10.9 billion — a significant sum, but far below the ‘firefighting’ peaks of the past. This reduced intervention signals that the RBI is no longer fighting to hold a specific level, but merely smoothing the inevitable slide.
The central bank’s calculated gamble is that a weaker rupee will act as a shock absorber, making Indian goods cheaper abroad, and offset the tariff pain. Experts, however, are divided on whether this textbook theory will work in reality.
Dr. Sen offers a pragmatic endorsement of the strategy, provided the execution is controlled. ‘Is that healthy for the economy? Yes,’ Dr. Sen argues, viewing the depreciation as a necessary adjustment. His concern is velocity, not value. ‘Sharp jerks will be very disruptive,’ he warns. ‘But if you gradually let it depreciate and find its own level, then it’s fine because people then have time to adjust… to renegotiate contracts.’ For Dr. Sen, a slow bleed over three or four months is preferable to a sudden 15% amputation.
Dr. Dasgupta, however, is skeptical about the very premise of the RBI’s gamble. He points to a troubling post-COVID anomaly: for years, the rupee fell in nominal terms, yet Indian goods didn’t get cheaper in real terms due to domestic price hikes. ‘Depreciation of the nominal exchange rate does not guarantee real exchange rate depreciation,’ Dr. Dasgupta cautions.
While he acknowledges that low inflation has recently helped the Real Exchange Rate fall, he remains sceptical that a cheaper currency can overcome the massive wall of weak U.S. demand. ‘The negative effect of weak U.S. import demand can negate the positive effect of exchange rate depreciation,’ he argues. For Dr. Dasgupta, the slide isn’t a solution, but a symptom of ‘larger structural problems’ that a simple currency adjustment may not be able to fix.
