MUMBAI, Dec. 3, 2025 — The Indian rupee slipped beyond the crucial 90-per-dollar mark on Wednesday, extending an eight-month slide driven by persistent capital outflows, elevated U.S. tariffs, and aggressive hedging by domestic companies bracing for further depreciation.
The currency has now weakened about 5% against the U.S. dollar this year, placing it among Asia’s poorest performers. The decline comes as U.S. tariffs of up to 50% on Indian exports dampen external demand and erode investor appetite for Indian equities—traditionally a magnet for foreign portfolio investors.
The rupee’s drop from 85 to 90 occurred in under a year, a much faster pace than its previous move from 80 to 85, reflecting intensified pressure on India’s external finances.
Capital Outflows Deepen
Foreign investors have pulled nearly $17 billion from Indian stock markets so far this year, one of the largest outflows globally. The retreat coincides with a slowdown in foreign direct investment, with India recording negative net FDI for a second consecutive month in September, driven by increased outward investment and repatriation of earlier inflows.
While India continues to draw gross investment—amounting to $6.6 billion in September—heavy exits from successful IPOs have outweighed inflows as private equity and venture capital firms unlock profits from earlier deals.
Trade Deficit at Record Levels
Adding to the pressure, India’s merchandise trade deficit jumped to an all-time high in October, fueled by steep U.S. tariffs and a surge in gold imports. Meanwhile, dollar inflows from overseas borrowings and non-resident Indian deposits have slowed, reducing the supply of foreign currency at a time when demand is rising.
Importers Hedge Aggressively as Exporters Hold Back
Traders say each stage of the rupee’s decline has triggered renewed dollar buying from importers aiming to hedge future payments. Exporters, expecting the rupee to weaken further, have been reluctant to sell their dollar earnings, widening the imbalance in the currency market.
“Left on its own, the rupee acts as a shock absorber for the economy,” HSBC economists noted, adding that a gradually weakening currency may help soften the impact of higher tariffs on India’s external accounts.
RBI Interventions Under Strain
Although the Reserve Bank of India (RBI) has intervened periodically to limit excessive volatility, market participants report that sustained demand for dollars—driven by outflows and hedging—continues to overshadow the central bank’s efforts.
These interventions have been reflected in a decline in India’s foreign exchange reserves and a rise in the RBI’s short-dollar forward positions, which reached a five-month high of $63.4 billion.
With trade talks between New Delhi and Washington still unresolved, analysts expect elevated volatility to persist, leaving the rupee vulnerable in the absence of strong capital inflows or a meaningful rebound in exports.