According to V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, the RBI typically steps in to stabilize the rupee by selling dollars when it depreciates.
INR against USD: Due to ongoing outflows of foreign institutional investors (FII) and uncertainties around the India-US trade pact, the Indian rupee fell dramatically by 36 paise on Tuesday, breaking the 91-per-dollar mark for the first time in intraday trading.
The currency has dropped from 90 to 91 versus the dollar over the last ten trading sessions, with a 1% fall in just the last five.
The RBI's substantial short USD forward position ($63 billion as of the end of October 2025) has caused intervention to move away from the spot market in the current system. According to Kunal Sodhani, Head Treasury at Shinhan Bank, "this has decreased RBI's willingness to sell dollars aggressively in spot, leaving the rupee more exposed to flow-driven pressure, even though it previously provided temporary stability."
Why is the Indian Rupee declining?
India is among the worst-hit markets in terms of portfolio outflows, with FPIs having net sellers in Indian equities worth over $18 billion so far in 2025.
Indian stocks have already underperformed the majority of their emerging-market counterparts this year due to slowing earnings momentum, stretched valuations, and the lack of listed AI-focused companies.
As investors await the outcome of trade negotiations between the two nations, the biggest tariffs levied by the US on any Asian economy have also affected sentiment.
Barclays Plc claims that the Reserve Bank of India is unlikely to actively defend the currency in the current climate, preferring to focus on economic expansion.
However, businesses with substantial exposure to foreign revenue, particularly technology exporters, can benefit from a weaker rupee. Since the end of September, an index that tracks IT equities has increased by almost 14%, which corresponds with the period of accelerated currency depreciation.
The rupee fell to all-time lows in relation to the major world currencies. The rupee is under pressure due to a delay in US-Indian trade relations and a significant FPI withdrawal from the domestic equity markets. The rupee's recent decline is due to record trade deficits and new trade duties of 50% on Indian exports imposed by Mexico, according to Rahul Kalantri, vice president of commodities at Mehta Equities Ltd.
Is it possible for it to drop to $100?
The rupee hitting $100 by March 31, 2026, would be an extreme result rather than the baseline, according to Akshat Garg, Head of Research and Product at Choice Wealth.
"As of December 16, 2025, the rupee is trading between ₹90.8 and ₹91.1, suggesting that a move to ₹100 would require about a 10% depreciation in a relatively short period of time." A "perfect storm"—a fast and prolonged global dollar rally fueled by unexpected Fed tightening, significant and ongoing portfolio outflows from India, and unfavorable terms-of-trade shocks, including a significant increase in oil and import prices—would be required for such a decline, according to Garg.
However, according to V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, the RBI typically steps in to stabilize the rupee by selling dollars when it depreciates. However, the RBI is not stepping in to stop the recent rapid devaluation of the Indian currency.
In light of Trump's tariffs, which have impacted our exports, this may be a calculated move to increase the competitiveness of India's exports. The rupee is probably going to trade between 90 and 92 in the near future. There is no need for concern because India's trade deficit decreased to $24.53 billion in November from $41.68 billion in October, he continued.
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