The rupee fell below its previous record low of 89.49, which was reached almost two weeks ago, to a new low of 89.83 versus the US dollar.
The rupee is at a historic low: On Monday, December 1, the Indian rupee struck a new all-time low against the US dollar, getting close to the 90 per dollar barrier. Market confidence has been negatively impacted by ongoing portfolio outflows and uncertainties surrounding the India-US trade agreement, notably concerns relating to tariffs.
The rupee fell below its previous record low of 89.49, which was reached almost two weeks ago, to a new low of 89.83 versus the US dollar.
The Indian stock market was similarly impacted by this recent wave of selling in the Indian rupee, as benchmark indices fell from all-time highs into negative territory.
Bankers told Reuters that the rupee, which is still under pressure due to the lack of movement on a trade deal between the US and India, has not benefited much from strong Indian economic growth.
The nominal GDP growth in the second quarter was low at 8.7%, while the real GDP growth of 8.2% beat forecasts.
India's real GDP growth is still robust, according to Anindya Banerjee, Head Commodity and Currency at Kotak Securities, but nominal growth has dropped to multi-year lows due to abnormally low inflation.
The poor nominal GDP growth in the statistics released on Friday night was noted by economists at DBS Bank and Kotak Mahindra Bank. According to Upasna Bhardwaj of Kotak Bank, the nominal GDP increase in the single digits still indicates weak underlying activity.
Why is the rupee declining?
The rupee's poor performance, according to analysts, has been caused by a sharply growing trade imbalance, significant withdrawals of foreign investors, and increased tolerance for two-way exchange-rate fluctuations.
In October 2025, India experienced its largest-ever trade deficit of $41.7 billion. The extraordinary increase in gold imports, which almost tripled to $14.7 billion, and the abrupt 28% drop in exports to the US to $6.3 billion in October compared to May were the main causes of this growing deficit.
With $425 million sold last month, the foreign portfolio outflows increased to $16,394 million this year.
With trade concerns still looming, Riya Singh, Research Analyst, Commodities and Currency, Emkay Global Financial Services, told Mint that a strengthening of the US dollar also affected our native currency.
Can the rupee drop below $90?
In addition to making it one of Asia's worst performers, the rupee's decline this year has put it dangerously close to the psychologically significant 90 per dollar threshold. According to analysts, a decline below this level is unavoidable given the current economic setup.
According to Banerjee, the 90 level is primarily a psychological threshold. "The rupee can definitely retest and even cross it if capital outflows continue and global risk sentiment stays low." But anything above 90 would further devalue the currency in relation to its fundamentals, he continued.
Singh agrees that there is a bias toward testing the 90 threshold in the risk balance going toward year-end.
The market can be contained around 90 if policy assistance materializes, such as ongoing active central bank forex intervention and a discernible recovery in export mood; on the other hand, a protracted delay in resolving trade frictions or new capital flight might drive the spot past 90, she concluded.
According to the most recent RBI data, the Reserve Bank of India (RBI) sold a net of $7.91 billion in the foreign exchange market in September. RBI Governor Sanjay Malhotra recently stated that once India signs a "good" trade agreement with the US, the pressure on the currency will lessen.
What effects might the weak rupee have on the market and economy?
Singh outlined three main effects of a weak rupee on the Indian stock market and economy:
1. Import-related inflation
Higher import bills from major imports, such as gold, energy, and intermediates, can increase headline import prices and reduce margins for manufacturers who rely on imports.
2. Capital flows and corporate profits
Higher risk premia may be demanded by foreign investors, which might lead to portfolio withdrawals and put pressure on share prices.
3. Trade-offs in policy
If it boosts rates to protect the currency, the central bank might have to step in more, depleting usable reserves or restricting domestic liquidity.
According to Banerjee, "a weaker rupee is not a major threat to the consumer economy with inflation running at very low levels." In actuality, exporters may benefit overall.
0 Comments