Rupee Falls to 90 as RBI Shifts Currency Management

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• The rupee fell past the Rs. 90 per U.S. dollar mark on December 3, 2025, prompting debates on whether the sharp depreciation reflects a market meltdown or a deliberate policy shift by the Reserve Bank of India (RBI).

Market Forces Driving the Rupee’s Decline

• The rupee’s movement is shaped by a combination of external shocks and domestic economic behaviour. 
• Three major market developments have intensified pressure on the currency:
• Tariff-Induced Export Slowdown
  • The 50% tariff imposed by the U.S., India’s largest export destination, has made Indian goods significantly more expensive. 
  • Exports to the U.S. fell 12% in September and 9% in October 2025, dragging overall monthly exports down by nearly 12% year-on-year.
  • The fall in demand meant exporters earned fewer dollars, contributing to a dollar scarcity and pushing the rupee lower.
  • A 0.5% increase in cumulative exports from April to October 2025, showing that exporters partly compensated through other global markets. 
  • Nevertheless, forward-looking indicators such as the Manufacturing PMI and new export orders sub-index are at their lowest in months, suggesting deeper export stress in the coming period.
• Surge in Gold and Silver Imports
  • Gold imports surged by 200% to $14.7 billion, and silver imports jumped 528% to $2.7 billion in October.
  • Although festive demand plays some role, economists call this a “flight to safety”, a reaction to domestic financial volatility.
  • To buy bullion, domestic players sold rupees to purchase dollars, adding to exchange market pressure and worsening the trade balance. 
  • This import surge became a major driver of the rupee’s depreciation.
• Record Foreign Portfolio Investor (FPI) Outflows
  • FPIs have withdrawn $17 billion from Indian equity markets in 2025, the largest outflow in two decades.
  • When FPIs exit, they sell rupees and buy dollars, accelerating the rupee’s fall. 
  • The scale of outflows is comparable to global distress years such as 2008 and 2022.

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Understanding RBI’s Strategic Shift

• While market factors exert pressure, the rupee’s actual value also depends heavily on the central bank’s intervention stance. 
• From Aggressive Defence to Limited Intervention
  • Between 2022 and 2024, the RBI sold enormous amounts of foreign reserves, over $30 billion in Q3 2022 and $38 billion in Q4 2024, to prevent sharp depreciation.
  • However, in 2025, despite comparably adverse conditions, RBI sold only $10.9 billion in Q3. This signals a pivot away from protecting a fixed exchange rate.
  • Economists call this a managed float strategy: the RBI is no longer fixing the rupee at a particular level but smoothing volatility while allowing depreciation.

RBI’s Calculated Bet on a Weaker Rupee

• RBI appears to be betting that a gradually weaker rupee can act as an economic shock absorber:
  • It could make Indian exports more competitive,
  • Partly offset tariff losses, and
  • Prevent excessive reserve depletion.
• Experts support the strategy if executed slowly. Gradual depreciation allows firms time to renegotiate contracts and adjust supply chains. A sudden 15% fall would be disruptive.
• However, they also offer a caution: a weaker nominal rupee does not automatically translate into a competitive real exchange rate, especially if domestic inflation is high. 
• Historically, India saw nominal depreciation without export gains post-COVID because domestic costs rose faster. Weak U.S. demand may blunt any benefit from the rupee’s fall.

A Balancing Act Between Risks and Resilience

• The rupee’s slide reflects a mixture of global shocks, domestic behaviour shifts, and a strategic central bank recalibration. 
• While India faces near-term risks, such as rising import bills, volatility in investor sentiment, and uncertain export recovery, the deliberate moderation of forex interventions indicates confidence in the currency’s ability to seek a stable market level over time.
• The coming months will test whether the RBI’s approach can stabilise macroeconomic pressures without triggering financial instability.

Source : TH