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

The rupee crossed the $90 level for the first time, falling more than 5 percent since last January, shaking financial markets. This decline contrasts sharply with India’s strong domestic fundamentals – GDP growth of 8.2% and inflation below 1% – but reflects sustained capital outflows, record imports, and what traders describe as the Reserve Bank of India’s restrictive approach to managing currency fluctuations. With the rupee now significantly oversold, all eyes are on the RBI’s upcoming policy statement for cues on its intervention strategy.

FPI withdrawal and reduced reserves

The currency’s decline was exacerbated by heavy selling by foreign portfolio investors. Foreign institutional investors have withdrawn Rs 1.48 lakh crore from Indian stocks since January 2025, according to NSDL data, citing persistent underperformance compared to global markets. Despite domestic indices reaching new highs, India has lagged behind many of its major global peers that have posted stronger returns this year. As a result, FIIs have increasingly treated India as a source of liquidity and reallocated capital to more profitable destinations.

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

Commercial pressures and the absence of a deal

India’s trade dynamics further dampened sentiment. Goods exports contracted 11.8 percent year-on-year in October to $34.4 billion, while imports rose 16.6 percent to a record high of $76.1 billion. Gold imports alone rose to $14.7 billion amid festive and speculative demand.

The absence of a confirmed trade agreement between India and the United States – and repeated delays in negotiations – have amplified the uncertainty. “The rupee fell below the 90 level, under pressure of no confirmed trade deal between India and the US. Markets now want concrete numbers rather than broad assurances, leading to an acceleration in selling,” said Jatin Trivedi, deputy chief research analyst at LKP Securities.

Rising metal and bullion prices have inflated the import bill, while steeper US tariffs have eroded the competitiveness of Indian exports. “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, unfavorable tariff differentials, and weak portfolio flows,” noted Radhika Rao, chief economist at DBS Bank.

Silent RBI intervention

Market participants say the Reserve Bank of India has been selling dollars to contain volatility but is refraining from defending any specific exchange rate level. “The dollar index is below 100, so the rupee should be flat. The RBI appears to be silent on intervention,” observed Madan Sabnavis, chief economist at Bank of Baroda.

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

VK Vijayakumar, chief investment strategist at Geojit Investments, added: “The ongoing decline in the value of the rupee and fears of further weakness are forcing FIIs to sell despite improving fundamentals. The rupee decline may reverse once the India-US trade deal is concluded, although a lot depends on the tariff details.”

Increased gold imports

Gold imports tripled to $14.7 billion in October, driven by higher global prices and strong holiday demand. Non-oil and non-gold imports also increased, reflecting the resilience of consumer and industrial activity. But high commodity prices and weak exports continue to put pressure on India’s external sector.

Looking ahead, a weaker rupee may marginally benefit exporters but risks fueling imported inflation. “Any mark that is breached by 2-3 days becomes the new norm. The market is talking about 91, though we expect a correction to 88-89 after the policy,” Sabnavis said.