The Indian rupee has recently slipped below the crucial ₹90-per-dollar mark, raising significant concerns among financial analysts and market watchers. This depreciation, exceeding 5% this year, reflects a combination of both domestic and international pressures, including the strength of the US dollar and delays in the India-US trade agreement.
The ₹90 mark serves as an important psychological threshold for the rupee. Breaching this level can lead to increased buy-stop orders, potentially accelerating the rupee's decline toward ₹91 or beyond. This situation indicates a cumulative buildup of pressures rather than a response to a single event.
Despite strong macroeconomic indicators, such as:
the rupee continues to face persistent downward pressure. This disconnect highlights the complexities underlying currency trends in India.
Foreign portfolio investor (FPI) outflows have been a significant factor, driven by profit booking and shifts toward other markets. This has drained liquidity and increased demand for the US dollar. Additionally, delays in the India-US trade deal have introduced uncertainty regarding future trade flows, tariff competitiveness, and the balance of payments outlook.
India's external sector faces mounting pressures as indicators suggest a widening trade deficit. In October 2025, merchandise exports fell by 11.8% year-on-year, reaching an 11-month low of $34.4 billion. Factors contributing to this decline include:
In contrast, imports surged by 16.6% year-on-year, totaling a record $76.1 billion, further straining the rupee.
Gold imports have notably impacted the trade deficit, tripling to $14.7 billion amid festive demand. This surge has intensified pressure on the rupee, complicating the overall balance of payments situation.
Concerns surrounding the unresolved India-US trade agreement add pressure on the rupee. Without a resolution, analysts warn that the currency may gradually weaken to offset tariff disadvantages faced by exporters. Furthermore, FPIs have withdrawn ₹1.48 lakh crore since January 2025, contributing to downward pressure on the rupee.
There is ongoing debate about whether the Reserve Bank of India (RBI) is intentionally allowing the rupee to depreciate. Many economists argue that the RBI is responding to global shifts rather than targeting a specific exchange rate. The RBI has been selling dollars primarily to mitigate volatility, not to defend the rupee's level.
Market behavior plays a critical role. Importers are aggressively buying dollars, while exporters hold back, anticipating better rates. This dynamic, coupled with the current dollar index, which is below 100, typically supports the rupee. However, the RBI’s relative silence has fueled negative sentiment in the market.
Q1. What factors are causing the rupee to weaken?
Answer: The rupee is weakening due to a combination of strong US dollar performance, foreign portfolio investor outflows, and uncertainty surrounding the India-US trade deal.
Q2. How does the trade deficit impact the rupee?
Answer: A widening trade deficit increases demand for dollars, which can lead to further depreciation of the rupee, complicating the balance of payments.
Q3. Why are gold imports significant for the Indian economy?
Answer: Gold imports significantly contribute to the trade deficit, which affects the rupee's value and overall economic stability, especially during festive seasons.
Q4. What is the RBI's role in currency depreciation?
Answer: The RBI intervenes in the currency market to stabilize the rupee when necessary but does not aim to maintain a specific exchange rate.
Q5. How do foreign investments influence the rupee?
Answer: Foreign investments affect liquidity in the market; sustained outflows can increase demand for the dollar, leading to depreciation of the rupee.
Question 1: What is a critical psychological threshold for the Indian rupee?
A) ₹85
B) ₹90
C) ₹95
D) ₹100
Correct Answer: B
Question 2: What has caused the recent widening of India's trade deficit?
A) Increased exports
B) Decreased imports
C) Increased gold imports
D) None of the above
Correct Answer: C
Question 3: How much have foreign portfolio investors withdrawn from Indian markets since January 2025?
A) ₹1 lakh crore
B) ₹1.48 lakh crore
C) ₹2 lakh crore
D) ₹1.2 lakh crore
Correct Answer: B
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