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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.

Image used for representational purposes only.
| Photo Credit: Reuters

Image used for representation purpose only.
| Photo Credit: Reuters

A man walks past an installation of the Rupee logo and Indian currency coins outside the Reserve Bank of India (RBI) headquarters in Mumbai. File
| Photo Credit: Reuters

Representative image
| Photo Credit: Getty Images/iStockphoto

Image used for representation purpose only.,
| Photo Credit: Reuters

New Delhi:

The Indian rupee depreciated a modest 2.9 per cent in the first nine months of the current fiscal, performing better than other currencies like the Canadian Dollar, South Korean Won and the Brazilian Real, according to the Economic Survey tabled in Parliament on Friday.

The value of the Indian Rupee (INR) is market-determined, with no target or specific level or band. Various domestic and global factors influence the exchange rate of the INR, such as the movement of the Dollar Index, trends in capital flows, level of interest rates, movement in crude prices, and current account deficit.

“In the first nine months of FY25 (up to 6 January 2025), the INR depreciated a modest 2.9 per cent, performing better than currencies such as the Canadian Dollar, South Korean Won and the Brazilian Real, which depreciated by 5.4 per cent, 8.2 per cent and 17.4 per cent, respectively, during the same period,” it said.

One of the primary factors behind the rupee depreciation during 2024 has been the broad-based strengthening of the USD amidst geopolitical tensions in the Middle East and uncertainty surrounding the US election, the survey said.

It further said after adopting the floating exchange rate regime, effective exchange rates have become a prominent measure of external competitiveness of an economy’s tradable sector relative to the foreign tradable sector.

The Nominal Effective Exchange Rate (NEER) for the INR remained stable in the 90-92 range from April to November 2024, indicating relative stability in the currency amidst external uncertainties.

The Real Effective Exchange Rate (REER), which reflects the real purchasing power of the currency, steadily appreciated from 103.2 in April 2024 to 107.2 in December 2024, the survey added.

(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)

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The Reserve Bank of India (RBI) on Thursday (January 16, 2025) announced liberalised norms to encourage use of Indian Rupee and local/national currencies to settle cross border transactions.

The decision comes at a time when the domestic currency is sliding and touched an all-time low of 86.70 per $ on Monday.

The Reserve Bank has already signed Memorandum of Understanding (MoU) with the central banks of the United Arab Emirates, Indonesia and Maldives to encourage cross-border transactions in local currencies, including Indian Rupee.

To encourage greater use of Indian Rupee (INR) for trade transactions, in July 2022, an additional arrangement in the form of Special Rupee Vostro Account (SRVA) was introduced. Several foreign banks have since opened SRVAs with banks in India.

“Overseas branches of Authorized Dealer banks will be able to open INR accounts for a person resident outside India for settlement of all permissible current account and capital account transactions with a person resident in India,” the RBI on Thursday said while announcing the changes made in the extant FEMA regulations.

Under the liberalised FEMA regulations, persons resident outside India will be able to settle bona fide transactions with other non-residents using the balances in their repatriable INR accounts such as Special Non-resident Rupee account and SRVA.

Also, persons resident outside India will be able to use their balances held in repatriable INR accounts for foreign investment, including FDI, in non-debt instruments.

RBI further said Indian exporters will be able to open accounts in any foreign currency overseas for settlement of trade transactions, including receiving export proceeds and using these proceeds to pay for imports.

The decision on promotions of cross border transactions in INR and local/national currencies follows a review of the FEMA regulations of 1999 undertaken by the Reserve Bank in consultation with the central government.

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The rupee’s slide show went on for the second straight session on Monday (January 13, 2025) as it crashed 27 paise to hit a new lifetime low of 86.31 against the U.S. dollar, dragged down by a robust American currency amid volatile global cues.

A record surge in crude oil prices, sustained outflow of foreign capital, and a negative trend in domestic equity markets also kept the Indian currency under pressure, forex traders said.

The dollar, they said, strengthened on better-than-expected job growth in the U.S. market, which also fuelled the benchmark treasury yields amid expectations of slower interest rate cut by the Federal Reserve.

At the interbank foreign exchange, the rupee opened at 86.12 and fell to the historic low level of 86.31 against the greenback in initial deals, registering a steep loss of 27 paise from its previous close.

On Friday, the rupee declined 18 paise to settle at 86.04 against the U.S. dollar.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading up 0.22 per cent to its over two-year-high level of 109.72. The 10-year US bond yields remained elevated touching its October 2023 level at 4.76 per cent.

Brent crude, the global oil benchmark, surged 1.44% to $80.91 per barrel in futures trade.

In the domestic equity market, the 30-share BSE Sensex was trading 550.49 points, or 0.71%, lower at 76,828.42 points, while the Nifty was down 182.45 points, or 0.78%, at 23,249.05 points.

Foreign institutional investors (FIIs) offloaded ₹2,254.68 crore in the capital markets on a net basis on Friday, according to exchange data.

The Reserve Bank of India on Friday said the country’s forex reserves dropped by USD 5.693 billion to USD 634.585 billion in the week ended January 3.

The latest government data released on Friday, however, showed the industrial production (IIP) growth accelerated to a six-month high of 5.2% year-on-year in November 2024, riding on the increased festive demand and pick-up in the manufacturing sector.