Key Highlights

• Rupee breaches the 89 per dollar mark, hitting a new record low

• India posts its highest ever monthly trade deficit at USD 41.68 billion

• Exports dip sharply while gold and silver imports jump

• Foreign investors pull back, hurting external financing

• RBI steps up intervention as currency volatility rises

• Analysts warn the rupee may soon test 90 per dollar

Rupee Falls to New Low as External Imbalances Raise Serious Concerns

The Indian rupee has slipped past the 89 per US dollar level, marking its weakest point ever and the sharpest single day fall in more than three months. This drop comes alongside new government data showing India’s merchandise trade deficit hit USD 41.68 billion in October 2025, the highest monthly deficit ever recorded.

The combination of falling exports, rising imports and weak foreign capital flows has created strong pressure on the rupee at a time when global markets are already volatile.

What Went Wrong Key Drivers Behind the Rupee’s Decline

1 Export Decline and Record Trade Deficit

India’s merchandise exports fell nearly 12 percent year on year in October to USD 34.38 billion.The drop was broad based and included a sharp fall in shipments to the US, India’s largest export market. Recent US tariffs on Indian products have added to the strain.

At the same time, imports surged to USD 76.06 billion. This combination pushed the trade gap to a historic high, intensifying pressure on the currency.

2 Surge in Gold and Silver Imports

Gold imports rose almost 200 percent from last year to USD 14.7 billion.Demand jumped due to the festive season, weddings, higher investment interest and global gold price movements. Heavy precious metal imports have expanded the import bill and worsened the external imbalance.

3 Weak Foreign Capital Flows

Foreign Portfolio Investors have reduced exposure to India through 2025 due to global uncertainty and weak confidence in export growth.The lack of progress on a US India trade deal and continuing tariff issues have further dampened investor sentiment.

This comes at a time when the country needs strong foreign inflows to support the currency, making the fall in capital flows even more impactful.

4 Stress in Currency Markets and RBI Intervention

To slow the rupee’s fall, the RBI has increased intervention, especially through the FX forward market, stepping up short dollar positions.Amid rising volatility, the IMF recently reclassified India’s exchange rate system from a stabilized regime to a crawl like arrangement. This highlights the shift toward more flexibility and higher day to day movement in the currency.

What This Means for the Economy and Households

A weaker rupee makes imports such as crude oil, metals and machinery more expensive. This can push up inflation, especially in energy dependent and input heavy sectors.

The record trade deficit and continued capital outflows may create pressure on India’s foreign exchange reserves over time.Export sectors already facing tariffs and soft global demand may see earnings downgraded.

On the positive side, domestic focused sectors such as retail, real estate, consumption and services remain relatively insulated, as they depend less on imports.

Outlook : Will the Rupee Fall Further

Many analysts now expect the rupee to test the 90 per dollar level if exports stay weak and gold imports remain high.

Some relief could come if:

• Gold demand cools after the festive and wedding season

• Exports recover in services or sectors not hit by US tariffs

• Foreign inflows pick up through equity or FDI channels

However, global uncertainty including oil price swings, decisions by the US Federal Reserve and a broader global slowdown continue to weigh on the outlook. For now, a slow and steady depreciation appears likely.

Impact on Investors and Portfolios

Sectors Under Pressure

• Export driven sectors may see lower earnings and valuation cuts

• Import heavy companies could face margin pressure as costs rise

• Firms with foreign currency debt may face higher repayment costs

Sectors Better Positioned

• Domestic consumption sectors like FMCG, retail and housing

• Companies with limited import exposure

• Structural growth themes linked to local demand

Gold linked businesses may see volatility as both gold prices and the rupee move unpredictably.

Overall, a weak rupee environment favors firms rooted in domestic demand and penalizes companies dependent on global markets or foreign currency costs.

The Silver Lining What to Watch

• Services exports remain strong and may help offset weak goods exports

• A fall in global oil or gold prices could ease some pressure

• A weaker rupee can improve export competitiveness over time

Conclusion A Stress Test for India’s External Finances

The fall of the rupee past 89 per dollar is more than a short term market reaction. It highlights deeper stress in India’s external balance - falling exports, rising imports, weak capital inflows and global uncertainty.

For investors and policymakers, this is a crucial moment to reassess risks, fine tune hedging strategies and shift toward resilient domestic themes.If global conditions stabilise and trade tensions ease, the rupee may find a floor. But for now, external pressures remain high, and portfolios must adapt to a more volatile currency environment.