The Indian rupee slid to a record low on December 16, breaching the ₹91-per-dollar mark for the first time in intra-day trade, as sustained foreign portfolio investor (FPI) outflows, elevated hedging demand, and uncertainty over the India–U.S. trade deal weighed on sentiment. The currency is down about 5.3% year-to-date in 2025, its steepest annual decline since 2022, placing it among the weakest-performing emerging market and Asian currencies this year. Dealers attribute the move to persistent portfolio exits, tighter global financial conditions, and the impact of higher U.S. tariffs on Indian exports, which have pressured trade and capital flows.
Despite some improvement on the external balance, pressures remain uneven. India’s current account deficit narrowed to 1.3% of GDP in Q2, improving by nearly 90 basis points year-on-year, supported by services exports and remittances. However, the merchandise trade deficit widened to a record $41.7 billion in October, underscoring continued stress on the goods trade. The rapid depreciation—from Rs. 89 to Rs. 91 per dollar in under two weeks—has raised hedging costs, with the one-month dollar/rupee forward premium rising to about 23.25 paise, a seven-month high.
Market participants note that the RBI’s intervention has been relatively limited, suggesting tolerance for a weaker rupee to support export competitiveness amid ongoing trade negotiations and also probably an expectation that the Rupee will stabilize soon on its own in due time.
Acknowledgements:
RBI Bulletin (www.bulletin.rbi.org.in), SEBI (www.sebi.gov.in), NSE (www.nseindia.com), BSE (www.bseindia.com)
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