Rupee Plunges to Lifetime Low of 89.61 Amid US Trade Uncertainty and FPI Outflows
The Indian rupee tumbled to a fresh all-time low on Friday, November 22, 2025, closing at 89.61 against the US dollar, marking its steepest single-day decline in over three months. The currency weakened by 93 paise (provisional), breaching the psychologically important 89-per-dollar mark for the first time and surpassing its previous record low of 88.8 set in late September and earlier this month.
Multiple Headwinds Pressure the Rupee
The rupee's sharp depreciation stems from a confluence of challenging factors affecting India's external sector:
- Heavy foreign portfolio outflows: Sustained selling by foreign institutional investors
- US-India trade deal uncertainty: Ongoing concerns about bilateral trade negotiations
- Perceived RBI intervention shift: Markets sensing reduced central bank defense of key currency levels
- US tariff impact: Continued strain from trade barriers implemented since late August
Market observers now anticipate the rupee could test the psychologically significant 90-per-dollar level if trade negotiations remain unresolved, despite India's broader economic fundamentals staying resilient with equity markets hovering near record highs.
Impact of US Tariffs on Trade Flows
Since late August, when steep US tariffs on Indian exports came into effect, the rupee has struggled to regain its footing. The tariffs have significantly impacted bilateral trade dynamics:
- Exports to the US: Fell 9% year-on-year, underscoring strain on trade relations
- Trade deficit: India's merchandise trade deficit hit a record high last month
- Trade flow disruption: Tariffs weighing heavily on export competitiveness
The widening trade deficit reflects reduced export earnings coupled with sustained import demand, creating additional pressure on the currency as dollar outflows exceed inflows.
Foreign Portfolio Investment Exodus
Foreign investors have turned increasingly risk-averse toward Indian markets, withdrawing $16.5 billion from Indian equities so far this year. This substantial outflow makes India one of the worst-hit emerging markets in terms of portfolio withdrawals, further exacerbating downward pressure on the rupee.
The combination of FPI selling and trade deficit expansion creates a double challenge for currency stability, as both factors increase demand for dollars in the Indian foreign exchange market.
RBI's Evolving Intervention Strategy
According to market participants and reports, the Reserve Bank of India's approach to currency defense appears to have shifted. Traders noted that the central bank, which had actively defended the 88.80 level in recent sessions, appeared to have scaled back its intervention intensity and instead likely stepped in near the 89.50 mark on Friday.
Anindya Banerjee, Head of Research – Currency, Commodity and Interest Rate Derivatives at Kotak Securities, explained the market dynamics:
"USD/INR broke decisively above 89, a level many importers and dealers believed the RBI would defend. Once this perception failed, aggressive short-covering kicked in across onshore and offshore markets, triggering stops and amplifying the upside move. In the near term, a combination of risk-off flows, a firmer US Dollar Index, and trade-deal uncertainty keeps the bias upward, potentially testing the 90 mark. For now, traders are watching a broad spot range of 88.7–90.3."
RBI Governor's Stance on Exchange Rate
RBI Governor Sanjay Malhotra addressed currency policy on Thursday, clarifying the central bank's approach to rupee management. He emphasized that the RBI has not set any target for the rupee's exchange rate against the dollar, stressing that market dynamics drive currency movements.
This statement reinforces the RBI's policy of allowing market forces to determine the exchange rate while intervening primarily to curb excessive volatility rather than defend specific levels—a shift from more active intervention strategies observed in some past periods.
Regional Currency Performance Comparison
The rupee's weakness is not occurring in isolation but represents one of the poorest performances among major Asian currencies this year. The Indian currency has declined 4.5% year-to-date, ranking among the weakest performers in the region.
This underperformance reflects India-specific challenges including the trade deficit, FPI outflows, and bilateral trade tensions, which have weighed more heavily on the rupee compared to regional peers.
Technical Market Dynamics
Friday's sharp decline was amplified by technical factors in the currency markets:
- Stop-loss triggers: Breaking above 89 triggered numerous stop-loss orders, accelerating the decline
- Short-covering: Aggressive unwinding of short dollar positions pushed the currency lower
- Perception shift: Changed market expectations about RBI intervention levels
- Cross-market impact: Movement affected both onshore and offshore rupee markets
Implications for Various Stakeholders
For Importers
A weaker rupee increases the cost of imports, particularly impacting sectors dependent on foreign raw materials, energy, and capital goods. Companies may face margin pressure unless they can pass increased costs to consumers.
For Exporters
While rupee depreciation theoretically makes Indian exports more competitive, the benefit is partially offset by US tariffs. However, exporters to other markets may gain some advantage.
For Indian Students and Travelers
Education expenses abroad and international travel become more expensive as the rupee weakens, increasing the dollar cost for overseas expenditures.
For Equity Markets
Foreign investors face currency losses on rupee-denominated assets, potentially deterring fresh inflows despite attractive equity valuations.
Economic Fundamentals Paradox
The rupee's weakness presents a paradox, as it comes despite India's broader economic fundamentals remaining resilient:
- Equity markets near record highs
- Robust GDP growth expectations
- Strong corporate earnings trajectory
- Healthy foreign exchange reserves
This disconnect suggests that currency movements are being driven primarily by external factors—US trade policy, global dollar strength, and portfolio flows—rather than domestic economic weakness.
Near-Term Outlook and Key Levels
Market analysts are closely monitoring several key factors and levels:
- Immediate resistance: The psychological 90-per-dollar level
- Trading range: Expected between 88.7 and 90.3 in the near term
- Trade negotiations: Any breakthrough could provide relief
- FPI flows: Resumption of foreign buying could stabilize the currency
- Dollar index: Global dollar strength remains a key driver
Policy Options and Considerations
While the RBI has adopted a more market-determined approach, several policy tools remain available if volatility becomes excessive:
- Direct intervention through dollar sales
- Forward market operations
- Adjustments to capital flow management measures
- Coordination with government on trade policy responses
However, heavy intervention comes with costs, including depleting foreign exchange reserves and potentially limiting monetary policy flexibility.
Long-term Structural Factors
Beyond immediate pressures, several structural factors influence rupee trends:
- India's persistent current account deficit
- Dependence on energy imports
- Volatility in global commodity prices
- Changing patterns of global capital flows
- Evolution of India's trade relationships
Looking Ahead
The rupee's trajectory in coming weeks will depend heavily on developments in US-India trade negotiations and whether foreign portfolio flows stabilize. If trade tensions ease and global risk sentiment improves, the currency could find support. However, continued uncertainty and FPI outflows could push the rupee toward the 90 level.
For now, market participants remain cautious, with importers likely accelerating dollar purchases for hedging while exporters may delay conversions in anticipation of further rupee weakness. The coming days will be crucial in determining whether Friday's record low marks a temporary peak or the beginning of a new leg of depreciation.
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