Key Points
- The rupee hit an all-time low of 90.16 per US dollar on Wednesday, December 3, breaking the 90 mark for the first time in history.
- Foreign institutional investors have withdrawn approximately $17 billion from Indian equities in 2025, with FII outflows continuing for the fifth consecutive month.
- The rupee has depreciated roughly 5 percent year-to-date, making it the worst-performing currency in Asia in 2025.
- Every rupee depreciation adds approximately ₹8,000-₹10,000 crore to India’s crude oil import bill, widening the current account deficit.
- The RBI is expected to announce its policy decision on December 5, with markets anticipating potential intervention or interest rate adjustments.
- A weakening rupee adds 0.2 to 0.3 percent to India’s inflation rate, putting pressure on the Reserve Bank’s ability to achieve its 4 percent inflation target.
The Indian rupee has crossed a critical psychological threshold, depreciating to a record low of 90.16 against the US dollar on Wednesday, December 3, 2025, marking the first time in history that the exchange rate has breached the 90-mark. The rupee opened at 89.96 on Tuesday and weakened as much as 0.35 percent during intraday trading, reaching the new all-time low before paring some losses due to limited Reserve Bank intervention.
This historic depreciation represents a sharp acceleration in rupee weakness, with the currency now down approximately 5 percent year-to-date, positioning 2025 as the worst year for the rupee since 2022. The rupee has fallen six consecutive trading sessions, reflecting a fundamental shift in investor sentiment toward Indian assets amid broader macroeconomic headwinds.
FII Exodus and Trade Deal Stalemate Trigger Currency Crisis
The primary driver of rupee depreciation is the persistent exodus of foreign institutional investors from Indian equity markets, with FIIs withdrawing approximately $17 billion from stocks in 2025. In December alone, FIIs have already sold equities worth ₹1,171 crore in the first three days of the month, continuing the trend established in November when FIIs were net sellers of ₹1,32,469 crore for the full month.
The stalled negotiations between India and the United States over a bilateral trade agreement have further amplified capital outflows, as investors await clarity on tariffs and market access. President Trump’s imposition of 50 percent tariffs on Indian exports has created uncertainty about the trajectory of India-US economic relations, while the initially expected first tranche of the bilateral trade deal by fall 2025 has failed to materialize. According to currency strategists at ANZ, these economic adjustments are necessary until a trade agreement is finalized.
Weakening Rupee Amplifies Import Costs and Inflation Pressures
The depreciation of the rupee carries significant economic consequences for India, particularly for its crude oil import bill, which constitutes over 10 percent of the nation’s total import expenditure. Analyst estimates indicate that each one-rupee depreciation against the US dollar adds ₹8,000-₹10,000 crore to India’s crude oil import costs, thereby widening the current account deficit and putting additional strain on the balance of payments.
Beyond oil, the currency weakness adds direct inflationary pressure, with every rupee depreciation contributing 0.2 to 0.3 percentage points to India’s headline inflation. This poses a considerable challenge to the Reserve Bank of India’s ability to maintain its 4 percent inflation target while potentially cutting interest rates to support economic growth. The central bank faces a difficult policy dilemma, as rate cuts may further weaken the rupee while rate hikes could depress growth in an already slowing economy.
Domestic Stock Markets Decline Amid Currency and FII Pressures
The depreciation of the rupee has coincided with a sharp correction in India’s benchmark equity indices on Wednesday, December 3, as FII outflows and profit-taking by domestic investors created a bearish sentiment. The Sensex declined 165.35 points to 84,972.92 in early trading, while the Nifty fell 77.85 points to 25,954.35, with broader weakness evident across most sectors except information technology and banking.
Foreign fund withdrawals totaled ₹3,642.30 crore on Tuesday alone, while domestic institutional investors attempted to provide some support by purchasing stocks worth ₹4,645.94 crore. However, DIIs have been unable to fully offset the persistent FII selling, leading to a deepening of market pessimism. The combination of a record-weak rupee, capital flight, and uncertainty surrounding the RBI’s upcoming monetary policy decision on December 5 has left investor sentiment extremely fragile.
Widening Trade Deficit Compounds Rupee Depreciation Pressures
India’s merchandise trade deficit has reached unprecedented levels, exceeding $40 billion in October 2025, creating a fundamental supply-demand imbalance for foreign currency. This widening trade deficit reflects a divergence between India’s strong domestic growth metrics (GDP growth accelerated above 8 percent in the second quarter) and a deteriorating external position marked by weak capital inflows.
The rupee weakness is occurring paradoxically despite India maintaining the status of the world’s fifth-largest economy and posting robust growth numbers, highlighting the disconnect between internal macroeconomic strength and external financial pressures. The supply-demand imbalance for US dollars has intensified as banks continue to purchase dollars at higher levels to meet import obligations, even as foreign investors reduce their positions in rupee-denominated assets.
RBI Policy Decision and Market Expectations
With the Reserve Bank of India scheduled to announce its monetary policy decision on Friday, December 5, markets are bracing for potential central bank action to stabilize the currency. Some market participants anticipate that the RBI may cut interest rates by 25 basis points in a dual-rate-cut scenario to support economic growth, though currency stabilisation measures remain unclear.
Currency strategists remain divided on the rupee’s trajectory, with some forecasting a weakening to 91 per dollar before a potential correction post-RBI policy announcement. Bank of Baroda research suggests that if the central bank intervenes decisively, the rupee could stabilize in the 88-89 range in the near term, though the fundamental pressures from capital outflows and trade deficit will persist.
Limited Global Headwinds Provide Marginal Relief
While the rupee remains under intense domestic selling pressure, some global factors have provided marginal relief from sharper declines. The US Dollar Index, which measures the greenback’s strength against a basket of major currencies, weakened 0.13 per cent to 99.22, reducing demand for dollars globally. Additionally, international crude oil prices have stabilised, with Brent crude trading around $62-63 per barrel, offering some relief to India’s import bill.
However, these tailwinds have proven insufficient to counter the relentless domestic selling pressure stemming from FII outflows and trade uncertainty. Experts warn that without a resolution of the US-India trade negotiations or a reversal in FII flows, the rupee risks testing the 91-level in the near term, creating a psychological barrier that could accelerate additional depreciation if breached.
