The Indian rupee’s sharp slide past the 90-per-dollar mark has intensified concerns across financial markets. The currency’s rapid weakening highlights persistent macroeconomic pressures, subdued foreign flows, and the absence of substantial central bank intervention. Investors, traders, and policymakers are now assessing the growing imbalance between domestic resilience and external vulnerabilities as the rupee continues to test new lows.
Despite India’s strong growth numbers, the currency’s decline reflects deep-rooted challenges in trade dynamics and foreign investment trends. The rupee has been falling for several sessions in a row, signalling stronger downside momentum and heightened caution among market participants. As global headwinds strengthen, expectations of further depreciation are rising, prompting greater scrutiny of trade negotiations and policy responses.
The situation has sparked debate on whether limited intervention is amplifying speculative activity and weakening confidence in the currency. With critical data points pointing to strain—from widening trade deficits to subdued foreign direct investment—the rupee’s trajectory is shaping economic discussions across India and abroad.
Rupee Hits Record Low Amid Persistent Selling Pressure
The rupee breached the 90 mark against the U.S. dollar, hitting an all-time low near 90.28 before settling slightly higher. This decline marked its sixth consecutive session of losses, underscoring sustained pressure from frail portfolio flows and tepid trade activity. The currency's steady retreat reinforces its position as the weakest performer among major Asian currencies this year.
Although domestic growth has been relatively strong, the external backdrop remains challenging. Elevated U.S. tariff measures and sluggish global demand have created an adverse environment for emerging market currencies. The rupee’s slide, now over 5% year-to-date, positions it for its steepest annual drop since 2022, drawing market scrutiny as investors watch for policy signals.
The performance gap between India’s domestic indicators and external sector stability continues to widen. The rupee’s persistent losses have turned investor attention toward the central bank’s strategy and the potential need for stronger intervention to restore stability to the foreign exchange market.
Foreign Flows Slow as Trade Negotiations Stall
Analysts highlight the imbalance between dollar demand and supply as one of the core reasons behind the rupee’s persistent decline. The absence of progress in trade negotiations has weakened sentiment further, creating uncertainty around future inflows. With no major breakthroughs, daily demand driven by trade deficits continues to outpace the limited supply of foreign currency.
Foreign investors have been reducing exposure, leading to significant selloffs in Indian equities. Outflows worth billions have intensified pressure on the rupee. Meanwhile, foreign direct investment levels and overseas borrowings remain subdued, weakening the support base that typically helps absorb currency volatility.
India’s trade deficit has widened sharply, recently crossing the $40 billion mark. Guidance from major financial institutions signals the likelihood of a higher current account deficit this fiscal year, indicating broader macroeconomic weakness. Together, these factors point to prolonged stress unless inflows increase or policy adjustments are made.
Broader Macro Indicators Turn Unfavourable
Rising trade deficits, slower nominal GDP growth, and declining investor sentiment have combined to create a challenging environment for the currency. Market experts note a broad-based deterioration in key metrics, reinforcing the notion that currency weakness is an inevitable outcome of recent economic shifts.
Portfolio managers and analysts emphasize that a revival in negotiations between major trading partners could create much-needed relief. However, the longer such discussions remain stalled, the more pressure builds on the rupee. Current projections suggest the currency may drift toward the 92–93 range in the coming quarter.
Recent price action in the dollar-rupee pair reflects this sentiment clearly. Weak economic markers and a lack of external support have driven expectations of continued depreciation, with forward-looking measures indicating brighter prospects for the dollar relative to the rupee.
Limited Intervention and Rising Speculation
The central bank’s restrained approach has played a notable role in recent market behaviour. Traders report a surge in speculative positioning, fueled by rising non-deliverable forward (NDF) points and heightened importer demand. With dollar demand growing steadily, forward points have surged sharply, reflecting expectations of further rupee weakness.
Short-term forward yields have hit multi-month highs, signalling strong hedging activity. Importers, anticipating continued depreciation, have strengthened their currency risk positions, contributing to rising forward premiums. These shifts indicate growing unease across corporate and financial sectors regarding the rupee’s near-term trajectory.
Light-touch intervention by the central bank has emboldened speculative traders, who are increasingly following momentum-driven cues. With key forward rates and premiums rising, markets are preparing for potential volatility ahead. Unless stronger intervention or positive policy developments materialize, the rupee may remain under sustained downward pressure.
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About the Author:
Harshit Raj
