Rupee hits new record lows: Key factors for INR depreciation; more weakness likely?

The Indian rupee (INR) plunged to an all-time low against the dollar on Thursday on persistent foreign outflows, hitting 90.42 per US dollar. The Indian currency has been depreciating sharply, hitting new record lows for three consecutive days, with limited to no signs of recovery.

Indian rupee is majorly correcting on the back of mismatch of supply and demand as India remains an import heavy nation, with large imports of crude oil, gold and consumer electronics, which need to be paid in dollars. Besides that, reducing imports of Russian oil, which was not paid in dollars, is also denting the sentiments for INR.

Market participants also believe that factors including US Tariffs have trimmed Indian exports, limiting the inflow of dollars into the Indian economy. Besides this, RBI is expected to reduce interest rates, which is also weighing on the sentiments for the local currency. Persistent selling of FIIs in the Indian markets is also pushing the demand for dollars, adding to rupee depreciation.

Several short-term headwinds emerged simultaneously. A US dollar 20 billion short forward book and RBI’s stance of limiting its intervention played its part amid nervousness regarding India-US trade and continued selling by FPI in the face of surge in the trade deficit. India’s current account deficit at 1.3 per cent of GDP in Q3CY25 through sustainable, was highest in CY25, said Elara Capital.

"Globally, firmer Japanese bond yields are creating uncertainty in Asia FX specially for the INR which has an average 60 per cent correlation with a short end of the JGB curve. Considering the short-term and medium-term factors, we expect the USDINR at 88-88.5 by end-CY26E. We see short-term downside capped at 91.5 levels," it added.

According to the data, Rupee is headed for the straight eighth years of depreciation against the US dollar. The Indian currency has depreciated more than 33 per cent in the last 10 years, while its depreciation stands nearly 105 per cent since the beginning of this century.

India remains one of the few major economies without a trade pact with the US, though officials are optimistic about finalizing an agreement soon. The prolonged delay has contributed to the rupee’s 5 per cent decline this year, making it among Asia’s weakest performers, as steep US tariffs on Indian goods hurt exports to its largest market and dampen foreign investor appetite for Indian equities, said Jigar Trivedi, Senior Research Analyst at Reliance Securities.

"A robust Q3 GDP did little to lift the currency and a widening current account deficit added further pressure. Attention now turns to the Reserve Bank of India’s policy meeting on December 5. The rupee’s sustained weakness and a strong GDP print have reduced hopes of a rate cut, despite earlier comments from RBI Governor Malhotra highlighting record-low inflation," he said.

Higher U.S. tariffs and limited RBI intervention have added to the pressure. With the RBI policy due Friday, markets will look for cues on whether the fall will stabilize, said Jateen Trivedi, VP Research Analyst - Commodity and Currency at LKP Securities. Technically, the rupee remains oversold and needs to reclaim 89.80 to recover meaningfully," he said.

The rupee is likely to remain under pressure and could trade in the 89.50–91.20 range in near-term, especially if crude oil prices stay elevated and foreign investors remain risk-averse, said Rahul Gupta, Chief Business Officer at Ashika Group

"A meaningful recovery will depend on a revival in foreign inflows, clarity on global rate-cut cycles, and improvement in India’s export momentum. Until then, the currency is expected to stay weak but orderly, guided by selective RBI intervention," he adds.