Indian Rupee Plunges to Historic Low of ₹90.7 Per Dollar Amid Trade Deal Uncertainty and FII Outflows

The Indian rupee touched a new all-time low on Monday, breaching the ₹90.7 mark against the US dollar, as mounting concerns over prolonged trade negotiations with the United States combined with sustained foreign investment outflows to severely pressure the domestic currency. This unprecedented depreciation highlights the challenges facing India's currency markets amid a complex interplay of domestic and international factors.

Intraday Currency Movement

The rupee commenced trading at ₹90.5 per dollar before weakening further to hit an intraday low of ₹90.79. The currency subsequently recovered marginally from its lowest point to close the day's session. The volatility in the rupee's movement reflects the uncertain environment created by geopolitical developments and capital flow dynamics.

Forex market participants attributed the rupee's weakness to a prevailing risk-averse sentiment, compounded by robust US dollar demand from importers. The combination of these factors has created sustained pressure on the domestic currency, pushing it to successive record lows in recent sessions.

US-India Trade Deal: The Primary Catalyst

The ongoing uncertainty surrounding trade negotiations between India and the United States has emerged as a critical factor weighing on rupee sentiment. Markets have been anxiously awaiting clarity on the bilateral trade framework, which has been under discussion for an extended period.

Recent developments indicate that talks have progressed but remain inconclusive. The new Deputy United States Trade Representative, Jamieson Greere, recently commented that India had presented "its best ever deal but was a hard nut to crack," suggesting that significant challenges persist in reaching a final agreement.

In response, Union Commerce Minister Piyush Goyal emphasized that trade negotiations should not be viewed as a rigid negotiation line and cautioned against making trade deals with artificial deadlines, which could lead to hasty and potentially unfavorable decisions. This measured approach underscores India's commitment to securing an agreement that serves its long-term economic interests.

Parallel Negotiation Tracks

The two countries are currently conducting parallel negotiations on two fronts:

• Framework Trade Deal: Focused on addressing high tariffs that impact bilateral trade flows
• Comprehensive Bilateral Trade Agreement (BTA): A broader pact aimed at deepening economic ties across multiple sectors

Commerce Secretary Rajesh Agrawal indicated on Monday, December 15, 2025, that India and the US are "very close" on the framework deal, which he believes can be finalized in a short timeframe. However, he refrained from providing a specific timeline for completion.

The Indian industry and export community are eagerly awaiting the conclusion of these negotiations, as elevated import duties imposed by the United States have significantly impacted Indian shipments to the American market. A favorable trade deal could potentially unlock substantial export opportunities and provide relief to affected sectors.

High-Level Political Engagement

The urgency and importance of finalizing the trade agreement were underscored by a recent phone conversation between Prime Minister Narendra Modi and US President Donald Trump on Thursday. The leaders discussed strategies to maintain momentum in the bilateral economic partnership, with both sides reportedly inching closer to finalizing the much-awaited trade deal.

India and the US concluded two days of intensive talks on Thursday, December 11, 2025, during which officials exchanged comprehensive views on trade-related issues and the ongoing negotiations. These discussions reflect the commitment of both nations to finding mutually beneficial solutions.

Foreign Investment Outflows Intensify Pressure

Adding to the rupee's woes, Foreign Institutional Investors (FIIs) have maintained aggressive selling in Indian equity markets. Between December 1 and December 15 alone, FIIs offloaded Indian equities worth ₹17,821 crore, creating significant downward pressure on the currency.

On Friday, foreign investors sold equities worth ₹1,114.22 crore, according to exchange data, continuing the pattern of sustained outflows that has characterized recent market sessions.

The relationship between FII outflows and rupee depreciation has created a vicious cycle: as foreign investors withdraw capital, the rupee weakens, which in turn reduces their dollar-denominated returns on Indian investments, potentially triggering further outflows.

Structural Currency Challenges

According to Anil Bhansali, Head of Treasuries and Executive Director at Finrex Treasury Advisors LLP, the rupee remains highly vulnerable in the absence of a conclusive trade deal with the US. He noted that while talks have concluded, the lack of definitive announcements continues to weigh on currency sentiment.

Dilip Parmar, Research Analyst at HDFC Securities, highlighted that despite an improvement in India's trade deficit in November 2025, the rupee has continued its downward trajectory. He attributed this "lack of resilience" primarily to a significant demand-supply imbalance driven by:

• High Dollar Demand: Importers' robust demand for US dollars to settle international trade obligations
• Persistent Capital Outflows: Continued withdrawal of foreign investment from Indian markets
• Risk-Averse Sentiment: Global investors adopting cautious positioning amid geopolitical uncertainties

Broader Market Context

The rupee's depreciation occurred against the backdrop of mixed movements in global markets:

Currency Markets

The dollar index, which measures the greenback's strength against a basket of six major currencies, was trading 0.08% lower at 98.32. Despite this marginal weakness in the dollar, the rupee failed to find support, indicating domestic factors are playing a more dominant role in determining currency direction.

Commodity Markets

Brent crude, the global oil benchmark, was trading 0.21% higher at $61.25 per barrel in futures trade. Rising oil prices pose an additional challenge for India, which imports a substantial portion of its crude oil requirements, potentially widening the current account deficit and adding to rupee weakness.

Equity Markets

Indian equity benchmarks closed in negative territory, with the 30-share Sensex declining 54.30 points to settle at 85,213.36, while the Nifty fell 19.65 points to 26,027.30. The subdued equity market performance reflects broader concerns about sustained foreign selling and macroeconomic headwinds.

Forex Reserves Provide Some Cushion

In a positive development, India's foreign exchange reserves registered a substantial increase of $1.033 billion during the week ended December 5, reaching $687.26 billion, according to Reserve Bank of India data released on Friday, December 12, 2025. This recovery came after the reserves had declined by $1.877 billion to $686.227 billion in the previous reporting week.

These robust forex reserves provide the RBI with significant firepower to intervene in currency markets if necessary to prevent excessive volatility and maintain orderly market conditions. However, the central bank has typically adopted a measured approach to intervention, focusing on curbing excessive volatility rather than defending specific currency levels.

Implications and Outlook

The rupee's depreciation to historic lows carries significant implications for the Indian economy:

Negative Impacts

• Import Cost Inflation: Higher costs for imported goods, particularly crude oil and capital equipment, could fuel domestic inflation
• Debt Servicing: Increased burden for entities with dollar-denominated debt obligations
• Current Account Pressure: Wider current account deficit due to elevated import bills
• Corporate Margins: Squeezed profitability for companies with significant import dependencies

Potential Benefits

• Export Competitiveness: Indian exports become more price-competitive in global markets
• IT and Services Boost: Technology and services exporters benefit from favorable currency translation
• Remittance Value: Increased rupee value of foreign remittances supporting consumption

Path Forward

The rupee's trajectory in the near term will likely be determined by progress on the US-India trade negotiations and the pattern of foreign investment flows. Any positive breakthrough on the trade front could provide significant relief to the currency, while continued uncertainty may perpetuate downward pressure.

Market participants will closely monitor upcoming economic data releases, RBI policy statements, and developments in global financial markets for directional cues. The central bank's intervention strategy and the government's policy responses will also play crucial roles in managing currency volatility.

For businesses and investors, the current environment necessitates careful hedging strategies to manage currency risk exposure. Companies with significant foreign currency obligations should consider appropriate risk management measures, while investors should factor in currency volatility when making portfolio allocation decisions.

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