The Indian rupee’s slide to a record low, crossing Rs 90 to the US dollar on Wednesday morning, marks one of the sharpest currency pressures India has experienced in recent years.
The fall has not been sudden; it is the result of a confluence of domestic vulnerabilities and global shifts that have collectively battered sentiment and intensified the demand for dollars.
At the core of the rupee’s weakness lies a ballooning trade deficit. India posted a record merchandise trade deficit of USD 196.82 billion during April–October 2025, an increase of more than USD 25 billion compared to the same period last year. The near USD 200 billion deficit starkly illustrates how rapidly imports are outpacing exports. This widening gap has a direct effect: it forces importers to buy more dollars, tightening the supply of the US currency in domestic markets and pushing the rupee down. India’s exports, which were already struggling with sluggish global demand, were dealt a body blow by US President Donald Trump’s surprise tariff impositions.
A huge 50 per cent penal tariff was slapped on almost all sectors as “punishment” for India’s purchase of Russian crude. India’s key export industries—such as textiles, gems and jewellery, pharmaceuticals, and chemicals faced new barriers at a time when they could least afford them. Exports slowed, while certain imports, such as gold, surged, worsening the trade imbalance and intensifying dollar demand. In fact, India’s merchandise exports were almost flat, growing by just 0.6 per cent during April–October this year.
The external environment has only amplified these pressures. The US dollar strengthened globally on the back of robust American economic growth and the Federal Reserve’s stance of keeping interest rates high for a longer period, attracting funds to American shores, and beggaring Asian fund markets in the process. The result is visible in foreign investor behaviour. Foreign portfolio investors withdrew over USD 17 billion from Indian equities so far this year, reflecting both concerns about emerging market risk and uncertainty around the unresolved US–India trade deal. Compounding this was the rush among Indian importers to buy dollars before the greenback became dearer. At the same time, Indian exporters delayed hedging, hoping for better rates later. This operational hedging cycle deepened the mismatch between dollar demand and supply, resulting in the rupee’s value weakening further.
Throughout this period of rupee weakness, the Reserve Bank of India (RBI) has been active in defending the currency by selling dollars aggressively, depleting its forex reserves by over USD 47 billion since October 2024.
However, the wise men running India’s central bank, who are meeting this week on a number of issues, know the RBI can’t keep selling dollars endlessly.
Persistent dollar sales drain rupee liquidity at a time when the banking system is already tight, limiting how far the central bank can intervene in the foreign exchange market without disrupting domestic credit conditions.
The consequence is that the rupee has effectively been allowed to find a new equilibrium. The currency is now down around 5 per cent this year, making it Asia’s worst performer in 2025.
Market forecasts suggest that without significant policy shifts, whether on interest rates, trade negotiations, or capital flow management, the rupee may remain in the 89–91 per dollar range through December.
There is also a more structural element to this weakness. While India’s growth remains relatively strong compared to many countries, its import-intensive economy, dependence on foreign capital markets, and exposure to global commodities leave the rupee vulnerable whenever global risk appetite shrinks.
What distinguishes this moment is not the fall itself, India has weathered sharper rupee falls before, but the number of economic and political factors acting at once. A record trade deficit, a global tariff war, portfolio outflows, stronger dollar, and limited ammunition with the RBI for a strong intervention.