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.

The rupee gained support from weak crude oil prices and optimism over trade tariffs to restrict its slide against the U.S. currency, according to traders. File.
| Photo Credit: Reuters

 At the interbank foreign exchange, the rupee opened at 88.69 against the U.S. dollar, and finally settled for the day with a loss of 7 paise at 88.79 (provisional), its lowest-ever closing level so far. File.
| Photo Credit: Reuters

Representative image
| Photo Credit: Getty Images/iStockphoto

 At the interbank foreign exchange market, the rupee opened at 87.46 against the U.S. dollar, and touched an intraday low of 87.48 and a high of 87.33 and settled at 87.36 (provisional). File.
| Photo Credit: Reuters

 On Friday, the rupee closed at 87.18 against the U.S. dollar. File.
| Photo Credit: Reuters

At the interbank foreign exchange, the rupee opened at 86.94 and touched the high of 86.91 against the greenback during intraday. File.
| Photo Credit: Reuters

Rupee depreciated 8 paise to close at 86.96 (provisional) against U.S. dollar weighed down by sustained foreign fund outflows and an uptick in the U.S. Dollar index.

Forex traders said there is a negative bias for the USD/INR pair as foreign investors continue to sell domestic equities and the RBI support is tapering off slowly.

At the interbank foreign exchange, the rupee opened at 86.94 and touched the high of 86.91 against the greenback during intraday. It also touched the low of 86.98 before ending the session at 86.96 (provisional) against the dollar, logging a loss of 8 paise from its previous close.

On Monday, the rupee depreciated 17 paise to close at 86.88 against the U.S. dollar.

Traders said disappointing trade deficit data from the domestic markets too pressurised the rupee.

India’s exports declined for the third month in a row in January, falling by 2.38% year-on-year to $36.43 billion, while the trade deficit widened to $22.99 billion in the month.

Imports rose by 10.28% year-on-year to USD 59.42 billion in January due to an increase in gold shipments, according to the Commerce Ministry data.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was at 106.95, higher by 0.35%.

Brent crude, the global oil benchmark, was quoted 0.77% higher at $75.80 per barrel in futures trade.

In the domestic equity market, the 30-share BSE Sensex declined 29.47 points, or 0.04%, to settle at 75,967.39, while the Nifty fell 14.20 points, or 0.06%, to 22,945.30 points.

Foreign Institutional Investors (FIIs) offloaded equities worth ₹3,937.83 crore in the capital markets on net basis on Monday, according to exchange data.

“We expect the rupee to trade with negative bias amid weak domestic equities and a recovery in the US dollar. FII outflows may also weigh on the rupee. However, any further intervention by the RBI may support the rupee at lower levels.

“Traders may take cues from speeches by the Federal Open Market Committee (FOMC) members,” Choudhary said, adding that “the USD-INR spot price is expected to trade in a range of 86.75 to 87.20.” On the global front, Chinese President Xi Jinping on Monday asked business leaders to unleash their talents in a rare meeting with billionaires including Jack Ma, founder of e-commerce giant Alibaba, in a bid to shore up sagging business confidence and reverse economic slowdown.

The meeting came amid concerns over Donald Trump’s decision to hike tariffs against Chinese exports to the U.S. amid the slowdown of the Chinese economy, which hovered at around 5% GDP growth in the last few years.

On Tuesday, the rupee rebounded from its lowest-ever level and settled with a gain of 17 paise at 86.53 against the dollar. File.
| Photo Credit: Reuters

The rupee pared its initial marginal gain and slipped 2 paise to 86.55 against the U.S. dollar in early trade on Wednesday (January 15, 2025) as the positive sentiment in the domestic equity markets was negated by elevated crude oil prices and massive withdrawal of foreign funds.

A retreating American currency, however, supported the Indian currency at lower level, forex traders said.

At the interbank foreign exchange, the rupee opened at 86.50 and touched 86.45 against the greenback in initial deals. However, the local unit soon pared the gains and traded at 86.55 against the dollar, 2 paise lower from its previous close.

On Tuesday, the rupee rebounded from its lowest-ever level and settled with a gain of 17 paise at 86.53 against the dollar.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.03% lower at 109.07.

Brent crude, the global oil benchmark, rose 0.06% to $79.96 per barrel in futures trade.

In the domestic equity market, the 30-share BSE Sensex was trading 271.26 points, or 0.35%, higher at 76,770.89 points, while the Nifty was up 50.80 points, or 0.22%, at 23,226.85.

Foreign institutional investors (FIIs) offloaded equities worth ₹8,132.26 crore on Tuesday.

Government data released on Tuesday showed that wholesale price inflation rose to 2.37% in December 2024, led by a spike in manufactured products even though prices of food items eased.

Another data on Monday showed retail inflation declined to a four-month low of 5.22% in December amid easing of prices in the food basket, fuelling expectations that the Reserve Bank of India (RBI) will reduce the key interest rate in upcoming monetary policy review on February 7.

The inflation based on the Consumer Price Index (CPI) eased for the second month in a row after it breached the RBI’s upper tolerance level of 6 per cent in October.

 At the interbank foreign exchange, the rupee opened at 84.92 against the greenback, and touched 84.95 during intra-day trade. File.
| Photo Credit: Reuters

The rupee dropped 3 paise to close at an all-time low of 84.94 (provisional) against the U.S. dollar on Wednesday (December 18, 2024), as traders await cues from the US Fed on the interest rate front.

Forex traders said dollar demand from importers as well as foreign banks, foreign fund outflows and a muted trend in domestic equities further dented investor sentiments.

At the interbank foreign exchange, the rupee opened at 84.92 against the greenback, and touched 84.95 during intra-day trade. The unit finally ended the session lower by 3 paise at an all-time low closing level of 84.94 (provisional) against the dollar.

On Tuesday, the rupee revisited its all-time low closing level of 84.91 against the U.S. dollar.

“We expect the rupee to trade with a negative bias on weak domestic markets and concerns over slowdown in the economy. A strong US dollar and FII outflows may further weigh on the rupee,” said Anuj Choudhary — Research Analyst at Mirae Asset Sharekhan.

Traders may take cues from the current account balance and housing data from the US. Investors may also watch out for the Federal Open Market Committee (FOMC) meeting decision. The US Federal is expected to cut interest rates by 25 bps to 4.5 per cent.

“USDINR spot price is expected to trade in a range of 84.75 to 85.20,” Choudhary added.

Moreover, the rising trade deficit added strain on the rupee. This increase in trade deficit was driven largely by record-high gold imports in November.

India’s exports in November contracted 4.85% year-on-year to $32.11 billion, while the trade deficit widened to an all-time high of $37.84 billion due to a record surge in gold imports.

The country’s gold imports in November reached a record high of $14.86 billion, registering a four-fold increase, mainly on account of festival and wedding demands, according to commerce ministry data.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading higher by 0.04 per cent at 107.

Brent crude, the global oil benchmark, rose 0.60% to $73.63 per barrel in futures trade.

In the domestic equity market, the 30-share BSE Sensex closed 502.25 points, or 0.62%, down at 80,182.20 points, while Nifty settled down 137.15 points, or 0.56% to 24,198.85 points.

Foreign Institutional Investors (FIIs) offloaded ₹6,409.86 crore in the capital markets on a net basis on Tuesday, according to exchange data.

 On Friday, the rupee rebounded from its all-time low level and settled with a gain of 8 paise at 84.80 against the U.S. dollar. File.
| Photo Credit: Reuters

The rupee depreciated by 9 paise to close at an all-time low level of 84.89 (provisional) against the U.S. dollar on Monday (December 16, 2024), dragged down by a negative trend in domestic equities.

Forex traders said the Indian rupee declined on weak domestic markets and rising U.S. bond yields. However, a soft U.S. dollar cushioned the downside.

At the interbank foreign exchange, the rupee opened at 84.83 and touched 84.89 against the greenback during intraday trade. The unit finally ended the session 9 paise down at 84.89 (provisional) against the dollar.

On Friday, the rupee rebounded from its all-time low level and settled with a gain of 8 paise at 84.80 against the U.S. dollar.

The unit’s previous all-time low level was recorded on December 12 when it closed at 84.88 against dollar.

“We expect the rupee to trade with a negative bias on rising odds of a rate cut by the Federal Open Market Committee (FOMC) and weak tone in the domestic markets. Elevated crude oil prices may also weigh on the rupee,” said Anuj Choudhary – Research Analyst at Mirae Asset Sharekhan.

However, FII inflows and cooling off of inflation may support the rupee at lower levels.

On the domestic macroeconomic front, wholesale price-based inflation declined to a 3-month low of 1.89 per cent in November on cheaper food items.

Retail inflation declined in November to 5.48% and came within the Reserve Bank’s comfort zone mainly due to easing food prices, creating headroom for a rate cut at the central bank’s rate-setting panel meeting under new Governor Sanjay Malhotra in February.

“Traders may take cues from PMI and Empire State Manufacturing Index data from the US. Investors may watch out for the FOMC meeting decision later this week. USD-INR spot price is expected to trade in a range of 84.65 to 85.05,” Choudhary added.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading marginally lower by 0.14% at 106.85.

Brent crude, the global oil benchmark, fell 0.78% to $73.91 per barrel in futures trade.

On the domestic equity market front, the 30-share benchmark index Sensex closed lower by 384.55 points or 0.47% at 81,748.57 points. The Nifty was down 100.05 points, or 0.4%, to 24,668.25 points.

Foreign Institutional Investors (FIIs) purchased ₹2,335.32 crore in the capital markets on net basis on Friday, according to exchange data.

Meanwhile, India’s forex reserves dropped by $3.235 billion to $654.857 billion for the week ended December 6, the RBI said on Friday.

In the preceding week, the reserves had increased by $1.51 billion to $658.091 billion, ending a multi-week decline in the overall kitty.