Rupee crashes past 90 per dollar: What’s fueling the slide amid strong growth and low inflation

The Rupee has breached the 90-per-dollar mark for the first time, slipping more than 5 per cent since January and rattling financial markets. The fall contrasts sharply with India’s strong domestic fundamentals—8.2 per cent GDP growth and inflation below one per cent—but reflects sustained capital outflows, record imports, and what traders describe as a restrained approach by the Reserve Bank of India (RBI) in managing currency volatility. With the rupee now deeply oversold, all eyes are on the RBI’s upcoming policy statement for cues on its intervention strategy.

FPI withdrawal and falling reserves

The currency’s slide has been aggravated by heavy foreign portfolio investor (FPI) selling. FPIs have withdrawn ₹1.48 lakh crore from Indian equities since January 2025, according to NSDL data, citing persistent underperformance relative to global markets. Despite domestic indices hitting fresh highs, India has lagged behind several major global peers that have delivered stronger returns this year. As a result, FPIs have increasingly treated India as a source of liquidity, reallocating capital to more profitable destinations.

This exodus has weakened India’s external buffers. Between end-September and November 21, 2025, foreign exchange reserves fell by $12.1 billion to $688.1 billion, driven largely by a $21.2 billion drop in foreign currency assets. A $9.2 billion rise in gold reserves helped, but not enough to offset the decline.

Trade pressures and absence of a deal

India’s trade dynamics have further dampened sentiment. Merchandise exports contracted 11.8 per cent year-on-year in October to $34.4 billion, while imports surged 16.6 per cent to a record $76.1 billion. Gold imports alone soared to $14.7 billion amid festive and speculative demand.

The absence of a confirmed India–US trade deal—and repeated delays in negotiations—has amplified uncertainty. Jateen Trivedi, VP Research Analyst at LKP Securities, said: “Rupee slipped below the 90-mark, pressured by the absence of a confirmed India–US trade deal. Markets now want concrete numbers rather than broad assurances, leading to accelerated selling.”

Elevated prices of metals and bullion have inflated the import bill, while steeper US tariffs have eroded the competitiveness of Indian exports. Radhika Rao, Senior Economist at DBS Bank, noted: “The recent intervention bias suggests that the currency will be allowed to find its equilibrium. The need to maintain the currency at competitive levels stems from the broader focus on manufacturing, unfavourable tariff differentials, and subdued portfolio flows.”

Muted RBI intervention

Market participants say the RBI has been selling dollars to contain volatility but is refraining from defending any specific exchange-rate level. Madan Sabnavis, Chief Economist at Bank of Baroda, observed: “The dollar index is less than 100 and hence the rupee should be firm. The RBI appears to be silent on intervention.”

This perceived restraint has accelerated the rupee’s decline. Bank of America analysts said reserves were still adequate to prevent a deeper slide, but warned that continued portfolio outflows could make prolonged intervention unsustainable.

VK Vijayakumar, Chief Investment Strategist at Geojit Investments, added: “The continued depreciation in the rupee and fears of further weakness are forcing FIIs to sell despite improving fundamentals. The rupee’s fall may reverse once the India–US trade deal materialises, though much depends on tariff details.”

High gold imports

Gold imports tripled to $14.7 billion in October, driven by soaring global prices and strong festive demand. Non-oil, non-gold imports also rose, reflecting resilient consumer and industrial activity. But high commodity prices and weak exports continue to strain India’s external sector.

Looking ahead, a weaker rupee may benefit exporters marginally but risks fuelling imported inflation. Sabnavis said: “Any mark breached for 2–3 days becomes the new benchmark. The market is talking of 91, though we expect a correction to 88–89 post policy.”