Tuesday, 09 Dec, 2025
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A weaker rupee offers Indian exporters limited relief. It won’t offset the US tariff hit, but it may open doors in other markets. RBI data shows the currency has slipped in real terms too—a weakness that, for now, works in exporters’ favour
The rupee’s slide past 90 to the dollar this week has triggered the usual anxieties. But the round number matters less than the forces behind it. What we are seeing is not a run on the currency; it is the system adjusting to a changed macroeconomic setting. Global demand is weak, India’s trade deficit is large, foreign inflows are patchy, and the Reserve Bank of India (RBI) has decided that the exchange rate should do more of the heavy lifting.
In effect, the rupee has shifted into a new zone. It briefly touched 90.29 before closing at 90.20 on December 3, ending the fastest eight-day fall since 2022. Traders now see 91 coming into view, perhaps within weeks. But the key point is that the move has been orderly. Bond yields are steady, stocks have not reacted sharply, and inflation remains low. This is not what currency stress looks like.
A managed glide, not a free fall
Markets describe the rupee’s behaviour as a deliberate easing. The RBI has intervened, but only to temper volatility, not to defend a specific level. In doing so, the central bank is signalling that a modestly weaker currency helps more than it hurts. Inflation is subdued, exports are struggling, and a cheaper rupee improves competitiveness at a time when many Asian peers are holding their currencies down.
The IMF recently reclassified India’s exchange-rate regime as “crawl-like”, meaning a slow, steady depreciation aligned with inflation differentials. This is a polite acknowledgement that India is no longer keeping the rupee in a tight band. It is letting markets nudge the currency down while maintaining a firm grip on disorderly movements.
The real effective exchange rate, now below 98, confirms that the rupee is mildly undervalued. Exporters will not complain. With global demand soft and competition from Southeast Asia intensifying, they need every bit of price advantage.
Outflows reflect global caution
Foreign portfolio investors have withdrawn nearly $17 billion from Indian equities this year—among the largest outflows in major markets. FDI, too, has been negative for two consecutive months. Even the burst of IPO activity has not changed the larger picture: foreign investors have bought around $7.6 billion of new shares but have sold more than $24 billion in the secondary market.
This is not about India losing appeal. It is about global investors reducing risk across the board. India, with deep markets and strong domestic liquidity, is an easy place from which to pull money without unsettling prices too much. Domestic investors have absorbed most of the selling; the currency market, however, cannot ignore the steady demand for dollars.
Trade deficit is the heaviest anchor
India’s merchandise trade deficit hit a record $41.7 billion in October. Even though the current account deficit narrowed in the September quarter, the underlying trend remains a large gap between what the country imports and what it exports.
Energy imports, particularly crude oil, add structural weight. Export growth has been weak, partly because of softer global conditions and partly because a 50 per cent US tariff is now affecting Indian shipments. As long as this imbalance persists, the rupee will face downward pressure.
Why this slide isn’t hurting—yet
Normally, a weaker currency stokes inflation. This time, it hasn’t. Wholesale and consumer prices remain soft, helped by benign food prices and subdued global commodities. The government’s interventions in food markets—export restrictions, stock releases, and import duty tweaks—have also kept volatility in check.
India’s foreign-exchange reserves, above $688 billion, offer additional protection. With coverage of roughly eleven months of imports, the RBI has ample room to act if the decline becomes erratic. For now, there is no such sign. The central bank seems comfortable letting the rupee find a lower level gradually.
The likely path: weaker, but with guard rails
Most currency strategists expect the rupee to weaken further, but slowly. Forecasts place it near 94 by 2026. The RBI appears focused on avoiding shocks rather than defending symbolic lines. The number may change, but the glide should remain smooth.
A meaningful reversal towards the high 80s will need a trigger. The most plausible one is a long-delayed trade deal with the United States. Such an agreement would lift exports, brighten sentiment, and draw in foreign capital. Until that happens, any rupee recovery is likely to be temporary.
What to watch
Three markers will shape the next phase:
For now, the rupee is adjusting to global realities with the central bank’s quiet approval. The headline number may have crossed 90, but the manner of its doing so—a calm, measured slide—matters far more than the mark itself.
