Key Highlights

• Rupee hits a record low of ₹90.43 per USD on December 4, 2025

• Drivers: FPI outflows, strong US dollar, and trade uncertainty

• RBI follows a calibrated intervention strategy to curb volatility

• Forward premia and hedging costs jump, signalling dollar scarcity

• Near term outlook: more volatility before possible 2026 recovery

Rupee Slides to New Lows as Outflows and Global Pressures Hit Currency

The Indian rupee weakened sharply to a record low of ₹90.43 against the US dollar on December 4, 2025. The fall reflects a slow but steady weakening trend seen over the past months, driven mainly by persistent foreign portfolio outflows, strong dollar strength in global markets and uncertainty around the progress of a US–India trade agreement.

Even though India’s domestic economic growth remains stable, the mismatch between rising dollar demand and softer foreign inflows has increased pressure on the currency. With external risks staying elevated, the rupee’s movement is being shaped largely by global and capital flow factors rather than any internal shock.

Why the Rupee Is Falling

Foreign Outflows Intensify

FPIs have been net sellers in Indian markets, cutting equity exposure and reducing foreign exchange inflows. At the same time, demand for dollars remains high due to imports of oil, metals and electronics, putting the rupee under pressure.

Trade Deficit Remains Wide

High import costs coupled with slow export growth continue to widen India’s trade deficit. Added uncertainty around a potential US–India trade deal has weakened sentiment further.

Global Factors Add Stress

The US dollar is strong globally due to high yields and risk aversion, making emerging market currencies like the rupee vulnerable.

Hedging Costs Rise

Forward premia and hedging costs have jumped sharply as companies rush to cover their dollar exposures. This signals a shortage of dollars in the near term and increases the cost burden for import-heavy businesses.

Sectoral Impact : Who Is Hit and Who Gains

Import-Dependent Sectors

Oil, metals, electronics and capital goods face higher input costs. Firms that are not fully hedged may see margin pressure, and prices could eventually rise for consumers.

Pharma and Chemicals

The effect is mixed — exporters benefit from a weaker rupee, but companies reliant on imported APIs or intermediates face cost inflation.

IT and Services

A weaker rupee boosts revenue for tech firms with dollar-linked contracts. However, volatility and higher hedging costs may make clients more cautious with new spending.

Banks and NBFCs

Higher hedging costs increase stress for companies with foreign currency borrowings. Lenders may face higher risks from firms with unhedged exposures.

Consumers and FMCG

Imported goods and raw materials become costlier. This may squeeze discretionary spending and push up prices for electronics and other imported items.

What the RBI Is Doing

The Reserve Bank of India is managing volatility, not defending a fixed exchange rate. It is using selective spot dollar sales and limited forward market operations to prevent sudden spikes, while still allowing the rupee to adjust gradually.

This approach helps protect forex reserves and maintains export competitiveness. By signalling controlled depreciation, the RBI shows that the currency’s movement is a response to global pressures - not a domestic crisis.

Market Indicators to Watch

• Forward premia and hedging costs: rising levels indicate stress and dollar shortages

• Forex reserves and RBI intervention: shows how actively the RBI is managing volatility

• FII flow trends: the biggest near term driver of currency pressure

• Trade negotiations: progress on the US–India trade deal can ease concerns

• Global dollar strength and US yields: key triggers for emerging market currency moves

Outlook : Short Term and Medium Term

Short Term – More Volatility Ahead

The rupee may face more weakness if foreign outflows continue and trade uncertainty remains. High hedging costs may keep import expenses elevated through the coming months.

Medium Term – 2026 May Bring Relief

A gradual recovery is possible in 2026 if capital flows improve, US dollar strength eases and trade talks progress. Exporters could gain from a slightly weaker rupee, improving competitiveness. But a recovery is not guaranteed — it depends on global and policy developments.

What Market Participants Should Track Now

1. Daily and weekly FII flows

2. Forward premia and rollover costs

3. RBI intervention patterns

4. Trade policy headlines

5. Global dollar trends and US yields

Final Word

The rupee’s fall to ₹90.43 per dollar is a market-driven response to foreign outflows and global dollar strength - not a sign of weakness in India’s domestic economy. The RBI’s strategy of smoothing volatility while allowing gradual adjustment shows a balanced, long-term view. While near-term volatility is likely, a stable medium-term path can emerge if capital flows recover and global conditions improve. This is a currency adjustment story, not a crisis - and external factors will guide the next phase of the rupee’s journey.

Source

• Reuters -“Rupee hits record low, forward premiums surge on weakening bias”

• Reuters - “Indian rupee to rise from record lows, but US trade deal key” (on outlook & trade-deal uncertainty)

• India Today - “Why is rupee falling constantly” (on outflows, trade-deal uncertainty)

• Times of India - “Rupee hits another low! Currency slumps to 90.43 against US dollar”