Why India’s Rupee Is Plunging to Record Lows

Why India’s Rupee Is Plunging to Record Lows? If you’ve noticed the rupee trading around ₹90 to the US dollar in December 2025, you’re not imagining things. On December 4, the rupee fell to an all-time low (about ₹90.43 per USD) before bouncing back slightly. This decline is unusual because India’s economy is actually running strong (growth is near a 6-quarter high, inflation is at a record low). So what’s going on? In short, a mix of global shocks and domestic flows has sent the rupee downward.

What’s Driving the Rupee’s Slide?

Several big factors have come together in recent weeks:

• Surging Oil Prices: India imports about 85% of its crude oil. When Brent crude prices tick up, the rupee takes a hit because India needs more dollars to buy oil. In early December 2025, oil prices were rising again (Brent around $62–63/bbl), which worsened India’s import bill and weighed on the currency.

• US Federal Reserve Policy: Globally, investors expect the US Fed to start cutting rates (its policy meeting was Dec 9–10). That has actually weakened the US dollar index to a five-week low. In theory, a softer dollar should ease the rupee’s fall. In practice, the impending Fed cut has injected volatility: traders were unsure of the timing and magnitude of rate changes. As one analyst noted, the rupee did get a tailwind from the “softness in the US dollar index” (following a weaker-than-expected US jobs report). But ahead of the Fed meeting, risk aversion kept pressure on emerging-market currencies like the rupee.

• Foreign Fund Outflows: A major domestic factor has been capital flight. Foreign investors have been selling Indian stocks and bonds, needing to take their money out. Reuters reports about $17 billion of equity outflows so far this year. In November alone, FPIs sold over ₹3,795 crore ($460 million) on one day, and by late November, outflows exceeded ₹14,000 crore. In effect, these investors sold rupees for dollars, driving the rupee down. One market commentator bluntly notes that India has been “one of the worst-hit markets in terms of outflows” this year.

  

  Foreign Institutional Investors (FII) Fund Flow in FY 25: Detailed breakdown by month shows significant fluctuations across equity, debt, and mutual funds, with a total outflow of ₹76,310 crore by December.

  
  

• Trade Deal Uncertainty: India is in talks with the US on trade, and for now, high US tariffs (up to 50%) remain on many Indian exports. This uncertainty has unnerved investors. Officials and analysts have flagged the stalled India–US trade negotiations as a negative for sentiment. Without a deal, tariffs stay high, hurting exporters and prompting more dollar demand for imports. The delay in announcing any progress “has also weighed on the rupee”, according to news reports.

• Technical and RBI Factors: Earlier in 2025, the RBI was aggressively selling dollars to defend the rupee, but by December, it had signalled tolerance for a weaker rupee. Reuters quotes insiders saying the RBI will intervene only to curb sharp volatility, not to defend a specific level. Indeed, RBI data show its short forward dollar positions hit a record $63.6 billion in October, a sign it’s been selling dollars to slow the slide. So while the RBI can smooth wild swings, it’s letting the rupee find a new equilibrium rather than

  holding it up above ₹90.

In summary, a perfect storm of higher import costs (oil), dollar strength, dwindling foreign inflows, and policy uncertainties has pushed the rupee to new lows. One analyst soberly noted: “It doesn’t make sense to spend reserves when fundamentally everything is against the currency,” reflecting RBI’s current stance.

Looking Ahead

The outlook depends on global and policy developments. If oil prices ease or the Fed cuts rates as expected, the rupee might find relief. Likewise, any progress in the India-US trade talks (slashing tariffs) could buoy the currency. But as long as foreign investors stay wary and India’s import needs remain high, the rupee may trade with a weak bias. RBI’s upcoming policy and USD–INR intervention plans will also influence the path.

For now, Indians will need to brace for higher import costs, even as exporters cheer their windfall. As Chief Economic Advisor to the Government of India, V. Anantha Nageswaran has pointed out, at least so far, the slide “is not affecting inflation or exports,” but if the rupee stays low, that balance could change. In the meantime, businesses, students, and travellers will feel the effects in their wallets, while exporters and NRIs enjoy some unexpected gains as the rupee rides new lows.

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