‘More demand for USD, limited INR use cases’: Expert explains why rupee has slid to 90 against dollar

The Indian rupee fell beyond the critical psychological level of Rs 90 per US dollar on Wednesday, hitting a new record low of Rs 90.30, as uncertainty over the pending Indo-US trade deal and persistent foreign inflows dampened market sentiment. The currency crossed its previous all-time low of Rs 89.94 recorded just a day ago, despite strong domestic macro data and moderating global dollar strength.

The rupee opened weak at Rs 89.96, and fell steadily during the session amid heavy dollar buying by banks, a corporate rush to hedge against further weakness, and continued foreign portfolio outflows. So far in 2025, the rupee has depreciated by 5.3%, making it the worst-performing major currency in Asia, even as the dollar index itself has fallen by 8.5% this year.

Why is the rupee falling?

Investor and entrepreneur Akshat Shrivastava, in a detailed post on X, analyzed the decline through the lens of supply and demand. “Anything in the world goes down because supply is more than demand. While the government controls the supply of Indian rupees, demand is a freer market,” he wrote.

Akshat Shrivastava claimed that the rupee’s weakness stems from a fundamental imbalance in global demand. He added that the dollar dominates simply because it “has more use cases.”

He explained that investors are attracted to markets that provide growth. “People invest in stocks to chase ‘growth’. There are more growth investment options in the US,” he noted. In contrast, he criticized the current Indian equity landscape: “Growth investing in India at the moment seems to be: raise SIP money, throw a percentage of it into frivolous IPOs, and then do it for the long term, for the long term – and let the FIIs get out.”

On debt, Shrivastava highlighted why global capital favors US assets during crises. “Every time there is more risk in the world, people flock to gold and stable fiat currencies like the US dollar, the Swiss franc or the Singapore dollar,” even if the United States “seems unstable to an uninitiated.”

He also noted that traders naturally prefer currencies that are widely accepted and stable. “When you trade, the seller wants to get paid in a stable, useful currency. The US dollar tops the chart.”

Ease of movement of capital is another area where India falls short. “A person in the US can easily move $1 million. But a person in India cannot move Rs 9 lakh crore easily,” he said, blaming “inefficient banks and crazy commissions” that discourage global investors.

Foreign investors also want predictable exchange rates. “If an investor invests money in India for one year, he hopes the currency will not move much. Otherwise, he can simply buy Bitcoin if he is okay with the fluctuations,” he noted.

Shrivastava stressed that the demand for the currency ultimately depends on what the country offers to the world. He points to China as an example: “There is demand for the Chinese renminbi because China is the best low-cost producer of a range of useful goods – from Diwali lights to Holi peachcaris to electric vehicles.” He said that India’s export basket is still limited. “In India, the subset of these products is very small.”

He concluded frankly that political choices also affect the rupee. “If we are spending INR to pay ladla-launda or berozgaar yuvati type schemes, we are burning INR,” he said. There is no sport at the macroeconomic level.

Foreign flows

Earlier in the day, veteran banker Uday Kotak said the rupee’s decline was exacerbated by ongoing selling from foreign institutional investors and private equity funds. “Direct reason: Foreign sale of Indian stocks both FPI and PE under FDI,” he wrote on X’s website. Domestic investors were digesting the offer, but the dollar-denominated Nifty return has now been zero over the past year, calling on Indian companies to “get out of their comfort zone.”

Foreign investors have withdrawn $16 billion from Indian stocks so far this year, according to stock exchange data. Analysts warn that a continued weak rupee could prevent further inflows and complicate India’s external financing.

GDP is strong, rupee is weak

The currency decline comes despite India recording strong GDP growth of 8.2% in Q2FY26 – the fastest in six quarters – and corporate profits reaching their highest levels in more than a year. But rising commodity import bills, a tripling of gold imports ($14.7 billion in October), and weak exports have widened the current account deficit, leading to higher demand for the dollar.

Analysts pointed to a rare alignment of pressures: a lack of visible intervention from the Reserve Bank of India, delays in completing the India-US trade deal, a widening trade deficit, and renewed capital outflows. India’s external sector has also faced pressure due to strong demand for imports, global commodity prices that have risen to unprecedented levels, and steep 50% US tariffs imposed on many categories of Indian exports.

What lies ahead?

Economists say the effects are mixed. A weaker rupee may provide marginal relief to exporters, but it risks fueling imported inflation in a fuel-dependent economy. Market strategist Madan Sabnavis warned that currency markets tend to treat breached levels as new benchmarks. “Any mark that is breached by 2-3 days becomes the new norm. The market is talking about 91, though he expects a correction back to Rs 88-89 after the upcoming RBI policy review,” he said.

Amid uncertainty over intervention and weak global risk sentiment, currency traders expect volatility to remain high in the coming weeks – making the RBI’s next policy a crucial signal for markets.