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.

At the interbank foreign exchange, the rupee opened at 88.73 against the dollar and traded in the range of 88.69-88.80 before settling at 88.79 (provisional), lower by 4 paise against its previous close. File.
| Photo Credit: Reuters

The dollar index, which gauges the greenback’s strength against a basket of six currencies, was up 0.08% to 98.21. Representational file image.
| Photo Credit: Reuters

Davos:

Attributing the fall in Indian rupee solely to the US dollar getting stronger, former Reserve Bank governor Raghuram Rajan has said any intervention by the RBI on this can end up harming Indian exports even as he urged policymakers to focus on creating more jobs and boosting household consumption.

Asked what the second term of US President Donald Trump means for the global and Indian economy, Rajan said, “I think it means uncertainty. President Trump during his campaign laid out a bunch of policies and measures that he wants to implement.”.

“We are seeing some of them being implemented. We have to see how intensely, for example the policy on immigration and trade and tariff proposals against whom and against which sectors are implemented. As of now what and how all this will pan out,” the eminent economist said.

On appreciation in the US dollar and its impact on other currencies especially in emerging markets including rupee, Rajan said the dollar has been appreciating against other currencies, partly due to fear of Trump tariffs.

“If he imposes tariffs, it is going to decrease US imports from other countries, narrowing the current account deficit and the trade deficit. So, from that perspective, it means that the US needs to import less and so dollar will strengthen because there would be fewer dollars in the rest of the world. So, that is the straight forward reason,” the former IMF chief economist said.

“There is also a view that the US is becoming more attractive as an investment venue because the people who can’t export to the US will move their production to the US. Also, you are seeing more capital flowing into the US and that is also leading to a stock market boom and also strengthening the dollar,” he said.

All these reasons, along with the US economy growing very strongly, are leading to a stronger dollar, he added.

Asked if there is not anything that the Reserve Bank of India can do to arrest dealing rupee, Rajan said, “I am not sure whether RBI should do anything because every other currency is depreciating against the US dollar because if it tries to elevate rupee vis-a-vis dollar, it will be essentially strengthening rupee against all other currencies and that would make it more difficult for our exporters.”.

“So, I will be careful about that. I will only intervene if the depreciation of rupee is really abrupt and creates a lot of volatility. That has always been the RBI’s motive for any intervention, that is to reduce volatility and not to try and change the eventual level of rupee,” he added.

“I think the Reserve Bank has not acted in hurry and it is also not done any intervention with an aim of preserving the value of rupee at some particular level. It has always allowed the market to find its own level,” he said.

Asked whether the US becoming more attractive investment destination is happening at the cost of another country and can it have any impact on India as an investment destination, Rajan said, “The idea behind tariffs is to reshore production, so it will have an impact on foreign direct investments of other countries.” Instead of investing in other countries, people will invest in the US, he said.

“For example, we are seeing Taiwan investing more in US to produce semiconductors there. That is not so much because of tariff policy but because of incentives given though. But we can also see tariff policy producing incentives for producing from factories in the US directly,” he explained.

On expectations from the Union Budget in India, Rajan said, “We do need to worry about the recent slowing of economic growth.” “Of course, one quarter does not tell the whole picture but it has come after we were growing very slowly before the pandemic, then during the pandemic, there was a little bit of crash and then we recovered,” he said.

“The worry is that a lot of the strong growth in the recent years was a recovery growth and now we have to build a sustainable growth. And that sustainable growth will come from having big investments and consumption growth,” Rajan said.

“We have worries on those two fronts. Private investments have not picked up. When we look at demand, earlier it was middle class and lower middle class which were soft on demand, for example on two-wheelers, and now it is the upper middle class where demand is softening,” he said.

Household demand for consumption comes when households feel comfortable and when their jobs and income are growing, Rajan said.

“Recently we have seen worries about jobs people have and the kind of income they have. For these reasons, I will suggest that the focus in the budget is how we create more jobs, create better jobs and create more confident households,” he said.

“More households consuming more will result in private industries investing more. So it is a virtuous circle and we need to figure how we fix this,” he said. 

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

New Delhi:

The rupee traded in a tight range and settled 1 paisa lower at 86.62 (provisional) against the US dollar on Friday, as massive outflow of foreign funds and falling domestic equity markets dented investors’ sentiment.

A firm American currency and higher crude oil prices also weighed on the domestic unit, forex traders said.

At the interbank foreign exchange, the rupee opened at 86.60, stayed range-bound between the high of 86.55 and low of 86.62 throughout the day and ended at 86.62 (provisional) against the greenback, 1 paisa down from its previous closing level.

On Thursday, the rupee depreciated 21 paise to close at 86.61 against the US dollar. In two back-to-back sessions, on Tuesday and Wednesday, the local unit had gained 30 paise from its lowest-ever closing level of 86.70 against the dollar.

Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan, said the rupee weakened on a negative tone in the domestic markets and a surge in crude oil prices.

“Importer demand may also pressurise the rupee. However, any selling of dollars by the Reserve bank of India (RBI) may support the rupee at lower levels. Traders may take cues from industrial production and housing market data from the US,” he said and projected the USD-INR spot price to trade in the range of 86.55 to 86.95.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.09 per cent higher at 108.91.

Brent crude, the global oil benchmark, rose 0.36 per cent to USD 81.58 per barrel in futures trade.

In the domestic equity market, the 30-share BSE Sensex fell 423.49 points, or 0.55 per cent, to settle at 76,619.33 points, while the Nifty declined 108.60 points, or 0.47 per cent, to 23,203.20 points.

Foreign institutional investors (FIIs) offloaded equities worth Rs 4,341.95 crore on Thursday.

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

At the interbank foreign exchange market, the local unit opened at 83.56 and gained further ground to trade at 83.49 against the greenback in initial deals, registering an increase of 8 paise from its previous closing level. File
| Photo Credit: V.V. Krishnan

The rupee appreciated 8 paise to 83.49 against the U.S. dollar in early trade on June 27, as crude oil prices retreated from their elevated levels.

Forex traders said the strength of the American currency in the overseas market and foreign fund outflows weighed on the local unit and restricted the upmove.

At the interbank foreign exchange market, the local unit opened at 83.56 and gained further ground to trade at 83.49 against the greenback in initial deals, registering an increase of 8 paise from its previous closing level.

On June 26, the rupee depreciated 14 paise against the U.S. dollar and settled at 83.57.

“Stronger fundamentals such as stable inflation, accelerated economic growth, higher business activity, and a controlled Current Account Deficit offer a counterbalance supporting the rupee. Additionally, continuous RBI intervention has also helped prevent significant rupee depreciation,” CR Forex Advisors MD Amit Pabari said.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading marginally lower by 0.10% at 105.94.

Brent crude futures, the global oil benchmark, were trading 0.20% lower at $85.08 per barrel.

Brent oil prices slid after U.S. inventory build-up fuelled fears about a slow demand from the U.S. Worries about a potential expansion of Gaza Hostilities disrupting Middle East supplies capped the decline, said Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors LLP.

In the domestic equity market, the 30-share BSE Sensex declined 38.81 points, or 0.05%, to 78,635.44 points. The broader NSE Nifty fell 15.20 points, or 0.06%, to 23,853.60 points.

Foreign Institutional Investors (FIIs) were net sellers in the capital markets on June 26, as they offloaded shares worth ₹3,535.43 crore, according to exchange data.

Stock markets took a beating on April 15 with benchmark Sensex and Nifty tumbling over 1% as escalating conflict in the Middle East and weak trends from global markets unnerved investors.

Falling for the second session in a row, the 30-share BSE Sensex tanked 845.12 points or 1.14% to settle at a more than two-week low of 73,399.78. During the day, it plunged 929.74 points or 1.25% to 73,315.16.

The NSE Nifty declined 246.90 points or 1.10% to settle at 22,272.50.

Key indices had plunged by over 1% in the previous session on Friday due to profit taking by investors at record high levels. Sensex lost 1,638 points or 2.19% while Nifty plunged 481 points or 2.13% to slip below the 22,300 level in two straight sessions.

Foreign fund outflows and hotter-than-expected US inflation data also played spoilsport for the markets.

Analysts said the renewed conflict in the Middle East, proposed changes in the India-Mauritius tax treaty and the hotter-than-expected US inflation proved to be major drags.

From the Sensex basket, Wipro, ICICI Bank, Bajaj Finserv, Bajaj Finance, Tata Motors, Larsen & Toubro, Tech Mahindra and HDFC Bank were the major laggards.

Nestle, Maruti and Bharti Airtel were the gainers.

In the broader market, the BSE smallcap gauge declined 1.54% and midcap index dipped 1.50 per cent.

Among the indices, services droped by 2.12%, financial services by 1.81%, IT by 1.58%, bankex by 1.55% and utilities by 1.37%.

Energy and oil & gas were the gainers.

A total of 2,991 stocks declined while 913 advanced and 145 remained unchanged.

In Asian markets, Seoul, Tokyo and Hong Kong settled lower while Shanghai ended in the positive territory. European markets were trading on a mixed note. Wall Street ended significantly lower on Friday.

“Geopolitical tensions and higher-than-expected US inflation impacted investor sentiment and dragged the indices to a lower note. The major casualties were the mid- and small-cap indices due to their rich valuation and expectation of moderation in earnings growth in Q4FY24.

“On the other hand, the European market opened on a positive note while oil prices inched lower as market participants expected that the diplomatic efforts were likely to de-escalate tensions in the Middle East,” said Vinod Nair, Head of Research, Geojit Financial Services.

Global oil benchmark Brent crude dipped 1.04% to $89.51 a barrel.

Foreign institutional investors (FIIs) offloaded equities worth ₹8,027 crore on Friday, according to exchange data.

“The escalating geopolitical tensions in West Asia prompted a decline in the 30-share BSE Sensex and the NSE Nifty. Market indices traded lower, influenced by the heightened tensions between Iran and Israel, leading to losses across major sectors. Notably, the broader small and midcap segments also saw declines,” said Suman Bannerjee, CIO of hedge fund Hedonova.

Official data released on Monday showed that wholesale inflation rose marginally to 0.53% in March compared to 0.20% in the preceding month due to an increase in prices of vegetables, potato, onion and crude oil.

Rupee falls 6 paise to settle at 83.44 against U.S. dollar

The rupee declined 6 paise to settle at 83.44 (provisional) against the U.S. dollar, in line with deep losses in equity markets.

However, weakening crude oil prices in the international markets and positive domestic macroeconomic data restricted the rupee’s fall, forex traders said.

At the interbank foreign exchange market, the local unit opened at 83.46 and traded between 83.42 and 83.47 against the greenback. The local unit finally settled at 83.44 (provisional), registering a loss of 6 paise from its previous close.

On Friday, the rupee declined 7 paise to settle at 83.38 against the US dollar.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.15% lower at 105.68.

Retail inflation declined to a five-month low of 4.85% in March, inching towards the Reserve Bank’s target of 4%, according to official data released on Friday.

India’s industrial production growth accelerated to a four-month high of 5.7% in February 2024, mainly due to the good performance of the mining sector, according to official data released on Friday.

The Income Tax Department on Friday said the amended India-Mauritius protocol on double taxation avoidance agreement (DTAA) is yet to be ratified and notified by the department.

India and Mauritius on March 7, 2024, signed an amendment to the DTAA and included a principal purpose test (PPT) in the pact which aims to curtail tax avoidance by ensuring that treaty benefits are granted only for transactions with a bona fide purpose.

The rupee strengthened by 6 paise to 83.26 against the U.S. dollar in early trade on September 20 on easing global crude oil prices and rising appetite for riskier assets.

However, a sell-off in the domestic equity markets and a strong American currency against major rivals overseas restricted the rupee’s rise, traders said.

At the interbank foreign exchange, the domestic unit opened at 83.22 against the dollar and then slipped to 83.26, registering a gain of 6 paise over its previous close.

In the initial trade, the domestic unit was moving in a tight range of 83.27-83.22 against the American currency.

In the previous session on September 18, the rupee had settled at an all-time low of 83.32 against the dollar.

Currency markets were closed on September 19 on account of Ganesh Chaturthi.

The dollar index, which gauges the greenback’s strength against a basket of six currencies, was almost unchanged at 104.83.

Brent crude futures, the global oil benchmark, fell 1% to $93.40 per barrel.

In the domestic equity market, the 30-share BSE Sensex was trading 307.27 points or 0.45% lower at 67,289.57. The broader NSE Nifty declined 100.75 points or 0.5% to 20,032.55.

Foreign Institutional Investors (FIIs) were net sellers in the capital markets on September 18 as they sold shares worth ₹1,236.51 crore, according to exchange data.