The Indian rupee continued to face pressure from fresh geopolitical tensions and rising Japanese yields. It fell to a record low of 91.70 against the dollar on Wednesday, down 72 paise from the previous close. This is the worst single-day fall since May 8, 2025.
Rising geopolitical tensions in Europe, along with no confirmed India-US trade deal, kept weighing on sentiment.
The rupee’s slide on Wednesday has taken the month-to-date depreciation to more than 2%. In the current financial year so far, the rupee has declined 7.30%, the worst in three years. The rupee continues to be the worst-performing currency compared to its Asian peers.
The real effective exchange rate (REER) further fell to 95.30 in December from 97.52 in the previous month, the latest Reserve Bank of India (RBI) bulletin released on Wednesday showed.
Limited RBI Intervention
The RBI was not active in the market supporting the currency through its dollar sales. The less intervention from the central bank has also contributed to the decline, said currency traders.
“Trump’s move to capture Greenland and impose 10% tariffs on eight countries, along with rising global geopolitical uncertainty, have fueled negative sentiment. The RBI’s absence in the market indicates they don’t seem to defend 91 levels as they did earlier. There is no point in burning their reserves when all factors are against the currency,” said Ritesh Bhansali, deputy CEO, Mecklai Financial Services.
The RBI intervention stays limited amid persistent foreign outflows, as heavy action would drain liquidity, said a chief dealer at a state-owned bank.
The sustained pressure from foreign outflows continues to push the rupee lower. During the day, FPIs sold shares worth Rs 1787.66 crore, as per provisional data by the BSE. So far in January, foreign investors have offloaded shares worth about $3 billion.
High Japan yields also contributed to the pressure. Japanese government bond yields, particularly long-dated papers, have surged to multi-decade highs, with 40-year yields exceeding 4% for the first time.
Unwinding Carry Trades
“Japan has long been the cheapest source of global capital. Rising Japan yields are now forcing an unwind of yen carry trades, leading to emerging market outflows, higher dollar demand, and pressure on the rupee.” said Kunal Sodhani, treasury head, Shinhan Bank.
“Weakness may persist, with the RBI intervention likely only to curb excess volatility. I expect the rupee to trade in the range of 90.50 – 92.50 in the near-term,” he added.
Currency analysts and experts believe that ongoing pressure on the rupee to sustain, with the currency likely weakening further.
“If things do not stabilise at the global level, I would not rule out 93 before March. The game-changers for rupee appreciation could be the US-India trade deal or the US Supreme Court ruling against Trump’s tariffs,” Bhansali added.