The rupee is literally on a free-fall touching the 91/$ mark. Given the sharp downward spiral in the currency, Pankaj Chaudhary, the Minister of State, Finance cited a higher trade deficit, evolving prospects of India–US trade agreement talks, and relatively weak capital account support as the key factors exerting pressure on the currency. He was speaking at the Lok Sabha.
The Indian rupee weakened sharply in late November and early December 2025, touching record lows multiple times against the US dollar. The rupee closed at Rs 89.41 per US dollar on November 21, slipped to Rs 89.64 on December 1, fell further to Rs 90.42 on December 4. Indian Rupee fell further and breached the 91 mark on December 16.
Why is the rupee under pressure
Replying to a question in the Lok Sabha, Chaudhary said the rupee’s movement is influenced by several domestic and global factors. “Various domestic and global factors influence the exchange rate of the INR, such as the movement of the Dollar Index, trend in capital flows, level of interest rates, movement in crude prices, current account deficit etc,” noted the written reply by MoS finance.
Widening trade deficit
The statement highlighted that in FY26, the rupee has come under pressure mainly due to a widening trade deficit and uncertainty linked to ongoing developments in India’s trade agreement with the US.
India is facing a steep 50% tariff from the US, and Mexico has also announced that it will increase tariffs on Indian imports to 50%, effective January 1. India and the US are currently holding multiple rounds of talks to reach a trade agreement that could help secure a reduction in these tariffs.
Strong dollar globally
The rupee has also weakened due to the strength of the US dollar worldwide. Movements in the Dollar Index, driven by global risk sentiment and expectations around US monetary policy, have led to capital moving towards dollar assets. This has reduced demand for emerging market currencies like the rupee.
Weak capital inflows
Relatively soft support from the capital account has hurt the rupee. Lower foreign portfolio inflows and cautious global investors have limited the availability of foreign currency in the domestic market, making the rupee more vulnerable during periods of stress.
Global factors and oil prices
External factors such as crude oil prices, geopolitical events and policy actions by major central banks have also played a role. Higher oil prices increase India’s import bill, raising dollar demand. Global events and OPEC+ decisions continue to affect currency markets, including the rupee.
Steps taken by the RBI to boost forex inflows
MoS in his reply also highlighted steps taken by Reserve Bank of India (RBI) to boost foreign exchange inflows.
In November 2025, it relaxed export credit repayment norms by extending the maximum credit period from one year to 450 days for both pre-shipment and post-shipment export credit disbursed till March 31, 2026.
In October 2025, the RBI increased the time limit for forex outlay in merchanting trade transactions from four months to six months. It also allowed authorised dealer banks to lend in rupees to non-residents in Bhutan, Nepal and Sri Lanka, including banks in these countries, to facilitate cross-border trade.
In August 2025, non-residents maintaining Special Rupee Vostro Accounts for trade settlement in rupees were permitted to invest their surplus balances in central government securities, including treasury bills.
Earlier, in May 2025, the RBI removed the requirement for foreign portfolio investors to comply with short-term investment and concentration limits for investments in corporate debt securities.
The written reply noted that RBI closely monitors the foreign exchange market and steps in to curb excess volatility whenever required. It also keeps a close watch on global developments that can influence the USD-rupee exchange rate, including monetary policy actions by major central banks, key global economic data, OPEC+ decisions, geopolitical developments, and daily movements in G-10 and emerging market currencies.
However, the government reiterated that the rupee’s value is market-determined and interventions aim only to smooth sharp movements, not defend any specific level.
Impact on the economy
The government said a weaker currency can help boost export competitiveness but may also push up the cost of imports. “However, the overall impact of exchange rate depreciation depends on the extent of the pass-through of international commodity prices to the domestic market,” the statement noted
Despite the rupee’s depreciation, the government maintained that India’s macroeconomic fundamentals remain strong. “At present, the macroeconomic fundamentals of the Indian economy remain strong, supported by robust domestic demand, moderating inflation, improved corporate balance sheets and sustained fiscal discipline,” the statement noted.