The Indian rupee continues to trade below the psychologically crucial 91 per dollar level. It opened at 91.07 against the US dollar on Wednesday- December 17. The local currency had breached this crucial mark, hitting a new historic intraday low of 91.08 on December 16 for the first time, and then went on to settle at 91.02 against the greenback.
On December 3, the Indian currency had fallen below the 90-level mark for the first time , and since then it has been on a depreciating spree. Over the past month, the currency has fallen 2.6%. So far in FY26, the rupee has declined 6.5%, the highest in three years, making it the worst-performing Asian currency of 2025.
The decline has largely been attributed to selling by foreign institutional investors in equity markets amid a lack of clarity over the US-India trade deal, and no strong intervention by the RBI to target any specific levels for the currency.
However, the rupee has recovered by nearly 1% from Wednesday’s close, with some analysts believing that the rupee’s depreciation is not actually hurting the Indian economy but may help in keeping trade competitive globally.
1. Declining trend across currencies
According to Sachin Sawrikar, Founder and Managing Partner, Artha Bharat, the rupee depreciation is driven by global factors rather than factors pertaining to India. The same is being experienced by other Asian currencies, with the Japanese yen weakening 10% year-on-year, he added.
Other currencies like the Korean won, Indonesian rupiah, Brazilian real, and Mexican peso have posted mid- to high-single-digit depreciations as compared to the Indian rupee, making the domestic currency’s movement relatively orderly as compared to its peers.
However, Anindya Banerjee of Kotak Securities has cautioned that rising US bond yields and expectations of a rate hike by the Bank of Japan have triggered an unwinding of the yen carry trade, which has further added to the speculative pressure on emerging market currencies like the rupee.
2. Expectations of export hikes
A weak Indian rupee makes domestic Indian goods cheaper for other currency holders, thereby aiding demand for the local currency. While India’s exports have declined, reports suggest that the depreciation in the currency is likely to improve the competitiveness of Indian goods and services, particularly in IT services, pharmaceuticals, and manufacturing, which will be supportive of export earnings, Sawrikar added.
Additionally, with the depreciation of the Indian currency, imports are expected to become more expensive, which is likely to improve domestic demand. Further, this weakening of the Indian rupee may keep India’s trade deficit in check for the near to medium term.
3. Lack of intervention by RBI
As per traders, the central bank has not targeted any specific levels for the local currency and has only intervened in the market through its dollar sales in mild manners. While some experts say intervention by the RBI is needed, others hold that with trade data being positive, a high GDP growth rate coupled with benign inflation numbers, the RBI holds a confident stance.
The central bank’s confidence has analysts divided, with some saying the currency is likely to rebound and reach the 90-level mark by the first half of 2026.
4. Axis Bank says depreciation is mild
According to Financial Express, Axis Bank has said the base case is for “mild, not wild” depreciation of the rupee. “The sharply weaker REER (real effective exchange rate) and ongoing reforms to improve the ease of doing business are supportive of sentiment and could incentivise fresh inflows over time. The rupee is projected at 90 by June 2026 and 92 by June 2027, with the pace of depreciation dependent on the evolution of capital flows and global risk appetite.”
5. High demand for dollar
Traders told Financial Express that importers are panic-buying dollars driven by fears of further rupee depreciation. This fear has led to a free fall in the Indian rupee.
“There was high demand for dollars due to capital market outflows and buying pressure from corporates towards hedging cover and oil-related payments. Therefore, the rupee, which opened weak, immediately lost levels,” a dealer at a public sector bank told Financial Express.
Outlook for Indian rupee
In the near term, the 90 level remains a key support, while 91.25 is an important resistance. A sustained break higher could open the door towards 92. The RBI’s relatively limited intervention so far appears deliberate, Banerjee said.
“With India’s growth strong and inflation contained, policymakers may be comfortable allowing some currency depreciation, especially in a global trade-war environment where a weaker currency can support export competitiveness,” the analyst added