The rupee fell below ₹90 per dollar last Wednesday. Despite the fact that this decline is considered “psychologically important,” the underlying economic fundamentals remain largely unchanged. However, a particular series of recent occurrences has given the currency new impetus and significantly tipped the scales against it.
The Reserve Bank of India’s (RBI) response and market conditions are the two primary determinants of the rupee’s increase or fall.
The rupee is being weakened by a number of significant market movements, including pressure on exports due to U.S. tariffs, a sharp increase in imports of gold and silver that adds weight to the skyrocketing import bill, and—most importantly—the large-scale withdrawal of foreign portfolio investors (FPIs) from Indian equity.
What is the RBI doing, too? Up until a year ago, the RBI was combating the rupee’s decline by selling dollars. However, the RBI has altered its strategy this year. They have made the decision to let the rupee find its own level and to become less and less involved. This shift in the RBI’s strategy has enabled the rupee to surpass the 90 threshold more than market conditions.
Sliding exports
Exports come first. U.S. President Donald Trump’s announcement of a 50% tax on Indian imports has had a real, painful effect. The rupee declined due to a shortage that resulted from demand declining and exporters earning less dollars when Indian items became 50% more costly for American consumers.
Recent data shows the harm. In September and October of this year, shipments to the United States, India’s biggest partner, decreased by more than 12% and 9%, respectively, resulting in a nearly 12% year-over-year decline in overall monthly exports in October 2025.
However, a broader perspective shows an unexpected resilience. Cumulative exports during the April–October period actually increased by 0.5% to $253.8 billion in 2025 compared to 2024, despite the U.S. downturn. This discrepancy implies that Indian exporters are finding windows overseas while the U.S. door is shutting.
Economists like Dr. Pronab Sen minimize the worry because of this resiliency. Dr. Sen contends, “It is not only the trade deficit with the U.S., it is the total trade situation,” pointing out that the export reduction is not significant since “we have made up in other countries.”
However, there is little solace for the future in previous data. November warning indicators are flashing red: The new export orders sub-index has dropped to a 13-month low, while India’s manufacturing Purchasing Managers’ Index (PMI) has dropped to a nine-month low, indicating that the worst of the tariff pain may still be ahead.
Increased imports
Imports come in second. A significant increase in imports of precious metals has contributed to the rupee’s decline, even if declining exports are a cause for worry.
Indian purchasing increased vertically in September and October. According to data, gold imports reached about $14.7 billion in October, an almost 200% year-over-year increase. Imports of silver increased by 528% to $2.7 billion, which was even more spectacular. Due to a local flight to safe-haven assets as well as the demand over the holiday season, importers actively stocked up despite record-high worldwide prices, paying premiums in September and October.
According to Dr. Sen, this particular frenzy is a classic “flight to safety” rather than ordinary joyful consumption. Dr. Sen clarifies, “It is not that we suddenly acquired a desire for gold.” “But since people are concerned about alternative assets, we have witnessed an unanticipated spike lately.” He contends that domestic investors are taking their money out of the stock market and putting it in bullion because they are afraid of the volatility.
This led to a “dollar outflow” in terms of the economy. Businesses flooded the market with local currency by selling rupees to acquire dollars in order to fund these enormous acquisitions. Therefore, this structural trade imbalance—the ongoing need to spend dollars on imports like gold and silver—was more responsible for the rupee’s devaluation than the tax on exports.
Flight FPI
Foreign Portfolio Investors (FPIs), the powerful individuals from across the world who invest heavily in Indian equities, come in third. In 2025 alone, these investors had extracted an astounding $17 billion from Indian stocks by December 3 (Chart 3). This exceeds the sell-offs of 2008 and 2022 and is the largest calendar-year outflow in at least 20 years. They sell rupees to take their dollars home after foreign investors go. 2025 has been particularly severe in this regard, hastening the depreciation of the currency.
The rupee is under tremendous pressure due to a combination of factors, including stalled exports, rising imports, and escaping capital. However, they do not provide a whole explanation for the rupee’s surpass of 90.
Dr. Zico Dasgupta, an economist, contends that the central bank decides whether to let market pressure to burn. “I want to differentiate between the decline in current and capital account flows and the rupee’s decline.” According to Dr. Dasgupta. “The current and capital account flows have deteriorated due to all three of the causes you highlighted, which has placed negative pressure on foreign currency reserves.”
He does point out that policy decisions determine the currency’s true worth. According to Dr. Dasgupta, “the rupee’s decline underscores RBI’s current strategy of maintaining a managed-float.” “This contrasts with the RBI’s previous strategy between mid-2022 and late 2024, when it essentially maintained the dollar exchange rate despite negative pressure on the capital account and current account.”
What action did RBI take?
Analyzing the central bank’s real market action is crucial to comprehending the rupee’s present direction. The Balance of Payments data, particularly under “Reserve Assets,” has the conclusive documentation of this involvement. The indicators in this accounting system show the direction of flow: a positive number indicates that the central bank is selling dollars to strengthen the currency, while a negative number indicates that it is purchasing dollars to raise reserves. The data shows a distinct change in strategy from vigorous defense to a major decrease in market involvement by monitoring these net flows from 2022 to late 2025.
Data supports this calibration. The central bank vigorously defended the currency during earlier periods of severe pressure, selling more than $30 billion in the quarter ending in September 2022 and over $38 billion in the quarter ending in December 2024.
The RBI’s hand is now much lighter in contrast. In the midst of comparable unrest, the central bank only sold $10.9 billion in the quarter that ended in September 2025. This is a substantial amount, but it is significantly less than the previous “firefighting” peaks. This decreased involvement indicates that the RBI is just easing the inevitable drop rather than trying to maintain a certain level.
The central bank’s calculated risk is that a declining rupee will serve as a shock absorber, lowering the cost of Indian products overseas and mitigating the negative effects of tariffs. However, there is disagreement among experts over the practicality of this textbook theory.
Dr. Sen provides a practical validation of the approach as long as the implementation is under control. Is that good for the economy? Dr. Sen contends that the depreciation is a necessary correction. Velocity, not worth, is what worries him. He cautions, “Sharp jerks will be quite disruptive.” “However, it is okay if you let it gradually decline and reach its natural level since people would then have time to adapt… to renegotiate contracts.” Dr. Sen believes that a gradual bleeding over a period of three or four months is better than an abrupt 15% amputation.
However, Dr. Dasgupta questions the RBI’s gamble’s basic assumption. He draws attention to a concerning post-COVID anomaly: although years of nominal rupee declines, domestic price increases prevented Indian products from becoming more affordable in real terms. Dr. Dasgupta warns that “depreciation of the nominal exchange rate does not ensure depreciation of the actual exchange rate.”
Although he admits that the Real Exchange Rate has lately declined due to low inflation, he is still skeptical that a less expensive currency can get past the enormous barrier of poor U.S. demand. He contends that “the negative impact of poor U.S. import demand may counterbalance the beneficial benefit of exchange rate depreciation.” According to Dr. Dasgupta, the decline is an indication of “bigger structural difficulties” that may be beyond the scope of a simple currency adjustment.
