The Indian rupee is almost in free fall mode plunging to historic lows. The currency breached the 90 mark against Dollar on Wednesday morning, extending its depreciation run in the past few days.
So far this year, the currency has depreciated by over 5% on a cumulative basis.
4 reasons why the rupee is falling
Here is a look at the key factors weighing on the currency
#1 Slowdown in capital inflows and limited RBI support
One of the reason of the rupee’s weakness is being driven by a sharp slowdown in capital inflows and reduced Reserve Bank of India (RBI) intervention.
Last year, between October 2024 and January 2025, the RBI sold a net $55.8 billion through spot and forward markets. This year, intervention accelerated only from August 2025, with the RBI offloading $36.3 billion between August and November.
According to IDFC First Bank, “the shift reflects the build-up of net dollar short positions in the RBI’s forward book.”
At the start of FY26, the forward book already stood at $84.3 billion as of March 2025, limiting the central bank’s ability to use buy-sell swaps without draining liquidity from spot dollar sales. Lower FX intervention has also supported monetary policy autonomy by reducing pressure on banking system liquidity.
# 2 India – US trade deal delayed
Another reason for the fall is the adverse tariff actions against India. The US imposed a steep 50% tariff on India earlier this year. Even though India has reduced its purchases of Russian oil recently, both the countries still couldn’t reach a trade deal and the effective tariff remains the same.
IDFC First Bank highlighted that a “trade deal announcement could offer short-term relief and push dollar- rupee lower,” however, the broader depreciation trend is expected to persist at a moderate pace.
#3 Record-high metal and bullion prices
Along with steep US tariffs that continue to strain export competitiveness “record-high metal and bullion prices have further worsened India’s import bill,” noted Jateen Trivedi, VP Research Analyst – Commodity and Currency of LKP Securities.
#4 Soft FDI and external borrowings
Foreign investors have pulled about $17 billion from Indian equities this year, while net foreign direct investment flows have remained weak. Adding to the strain, external commercial borrowings have been soft, highlighting how broad-based capital outflows have deepened pressure on the rupee.
“The weak macro picture in India makes weak currency performance inevitable, there has been a slide in so many data points recently – rising trade deficits, weakening nominal GDP growth, weak FDI and foreigner selling down domestic equities, etc,” said Sat Duhra, portfolio manager at Janus Henderson Investors in Singapore to PTI.
What’s ahead?
RBI MPC is meeting from December 3- December 5, all eyes will now be on the major announcements by the RBI governor on December 5.
“Markets expect clarity on whether the central bank will step in to stabilize the currency. Technically, the rupee is deeply oversold, and a move back above 89.80 is essential for any meaningful recovery,” said Jateen Trivedi of LKP Securities.
Analysts flags tariff risks said in the absence of a trade accord, the rupee’s decline is likely to accelerate. “In case a trade deal is not announced then the pace of depreciation is likely to be faster,” noted IDFC First Bank.