The year-end is likely to bring some recovery for the Indian rupee. On Friday the currency opened at 90.13, up 0.1% from its previous close of 90.24 against the US dollar. Traders said the rebound is largely on the back of the RBI’s intervention on Wednesday, owing to which state-run banks sold dollars aggressively to prevent the currency from sliding past the 91-level mark.
RBI intervention more of a temporary measure
Traders have said that the central bank’s intervention was more of a corrective measure. Earlier this month, RBI Governor Sanjay Malhotra had stated that the central bank does not have any specific target levels for the currency and that market forces will naturally guide the rupee’s trajectory.
“The RBI has, for now, broken the one-way (higher dollar/rupee) cycle. However, the recovery still looks tentative and more corrective than directional,” Reuters quoted a senior FX trader at a private bank as saying.
Economist says not to stress over falling rupee levels
Economic Advisory Council to the Prime Minister member Sanjeev Sanyal on Thursday said he is “not concerned about the rupee at all,” arguing that other Asian countries such as China and Japan have also witnessed exchange rate weakness during their high-growth phases.
Speaking at an event, Sanyal said that since the 1990s, the rupee has largely been allowed to find its own level, while the Reserve Bank of India (RBI) uses its reserves to intervene in either direction to curb excessive volatility.
“I am not concerned about the rupee at all. Let me say that the rupee and its current weakness should not necessarily be conflated with economic worry, because historically, if you look over time, economies in a high-growth phase often go through periods of exchange rate weakness,” news agency PTI quoted him as saying.
He further added that the weakening of the rupee should not be stressed over as long as it does not generate domestic inflation.
Soft US inflation data to offer temporary support
US inflation data, which came in softer than street expectations, is likely to offer some incremental support to the domestic currency. However, lingering uncertainty over the India–US trade deal continues to keep markets cautious, with the rupee expected to trade within the 89–90 range until a trade deal is finalised between the two countries.
India’s Chief Economic Advisor has said that a final outcome on the trade deal is likely by March 2026.
Bank of Japan hikes short-term interest rate
Additionally, the Bank of Japan has hiked its short-term interest rate to 0.75% from 0.5%, marking a landmark move by ending its near-zero borrowing costs. The 25 basis point hike marks the highest levels for Japan’s central bank since 1995. The second rate hike by BoJ signals towards its ultra-loose policy. Traders have cautioned that this rate hike could lead to an unwinding of the yen trade, which may put pressure on the rupee.
The lack of a trade deal has also led to a pullout of foreign equities from domestic markets. As per provisional data available from the NSE for December 18, foreign investors sold equities worth Rs 10,846 crore, while domestic investors sold equities worth Rs 9,675 crore.
Since April 2, when the US announced tariff hikes on India, the Indian rupee has depreciated by 5.2% against the greenback, making it the worst-performing Asian currency in 2025.