Understand why the Indian rupee has depreciated below 90 per US dollar in 2025. Learn about foreign capital outflows, US tariffs, trade deal delays, gold and oil prices, and the Reserve Bank of India’s response to currency pressure.
Table of Contents
Introduction
In early December 2025, the Indian rupee hit a historic low, falling below 90 to the US dollar for the first time. This might seem like just another number, but it reflects deep changes happening in India’s economy right now. Many people wonder what this means for their wallets, their jobs, and their country’s future. The answer is not simple, but it is understandable. Several forces are pushing the rupee weaker at the same time, and together they tell a story about global trade, investor confidence, and the choices India is making. This article breaks down these reasons in plain language so you can understand what is really happening and why it matters.
The Rupee’s Journey to 90
The rupee did not fall past 90 overnight. It has been weakening gradually throughout 2025. By December, it had lost more than 5 percent of its value against the dollar compared to the start of the year. This makes the rupee one of Asia’s worst performers this year. To put it simply, every rupee you have is worth less in dollars than it was before. This affects everything from your food bills to education abroad. But why is this happening? The answer involves several big factors working together like a perfect storm.
Foreign Investors Are Leaving India
One of the biggest reasons for the rupee’s fall is that foreign investors are pulling their money out of India. So far in 2025, around 17 billion dollars have left Indian stock markets. That is a huge amount of money rushing out the door. When foreign investors sell Indian stocks to take their money home, they need dollars to convert their rupees. This creates massive demand for dollars and pushes the rupee down in the process.
Think of it like this. If millions of people are trying to sell their rupees to buy dollars at the same time, the price of rupees falls simply because there are too many rupees and not enough buyers. It is basic supply and demand. Foreign investors are nervous about India’s economy right now, and their nervousness is being felt in the currency market.
America’s Tariffs Are Hurting Indian Exports
In August 2025, the United States government did something shocking. It put 50 percent taxes on many Indian products entering America. These taxes are called tariffs. India exports about 87 billion dollars worth of goods to America every year, but now selling to America is much more expensive and harder. This means Indian companies are making less money, and the country as a whole is receiving fewer dollars from exports.
When Indian exporters make less money, they have fewer dollars coming into the country. This means less dollar supply in India, and less supply drives up the price of the dollars that do exist. At the same time, the tariffs have hurt investor confidence. Foreign investors are now worried about India’s economic future because of these trade tensions. This worry is making them take their money out.
The impact has been severe. Indian exporters in sectors like electronics, seafood, textiles, and gems are struggling. Some factories have reduced production or paused orders altogether. This is not just bad for big companies but also for the workers who depend on these jobs.
Simple Explanation
| Main Reason | Subtitle / What It Means |
|---|---|
| Foreign investor outflows | Large amounts of money leaving Indian markets, increasing demand for dollars |
| US tariffs on Indian goods | Higher taxes on exports cutting India’s dollar earnings |
| Delay in India–US trade deal | Uncertainty reducing investor confidence and pushing funds out |
| High gold and oil imports | Rising import bills increasing demand for dollars |
| Growing current account deficit | India spending more on imports than it earns from exports |
| RBI interventions | Central bank selling dollars to slow the rupee’s fall |
| Global dollar strength | Investors choosing safer US assets over emerging markets like India |
The rupee’s drop below 90 is the result of multiple pressures hitting at the same time. Foreign investors are taking money out, which increases demand for dollars. US tariffs are making Indian exports less competitive, reducing the flow of dollars into the country. The delay in a trade agreement adds uncertainty that pushes investors away. On top of this, India continues to spend heavily on gold and oil imports, widening the current account deficit. The RBI is defending the currency, but its options are limited. A strong US dollar and risk-averse global markets add even more pressure.
The US and India Still Have Not Agreed on a Trade Deal
Since the new US administration came to power, there has been hope that America and India would make a new trade deal to resolve their differences. However, months have passed and no deal has been announced. This uncertainty is making investors and traders nervous. They do not know what will happen next, so they are playing it safe by moving their money away from India.
Markets work on confidence. When people do not know what will happen next, they avoid risk. India is now seen as risky because of this trade deal uncertainty. Every day the deal is delayed, more investors sell Indian assets and buy dollars. The psychological impact of this uncertainty is as important as any actual trade numbers. Traders tell us that the delay in finalizing the trade deal has been a key reason for the rupee’s fall.
Gold and Oil Prices Are Making the Problem Worse
India is one of the world’s biggest importers of gold. Indians buy gold for weddings, festivals, and to save money. When global gold prices go up, India has to pay more dollars to bring gold into the country. In October 2025, India imported 14.7 billion dollars worth of gold, setting a new record. That is a huge amount of money being spent on a single commodity.
Similarly, India imports almost 90 percent of its oil from other countries. While oil prices have remained relatively soft in 2025, any price increase makes India’s import bill larger. When India spends billions more dollars on gold and oil, it needs more dollars to import these goods. This pushes the demand for dollars even higher, weakening the rupee further.
The relationship works both ways. A weaker rupee makes gold even more expensive for Indians to buy because the same amount of foreign currency now costs more rupees. This creates a cycle where the falling rupee actually increases the import bill, which weakens the rupee more.
A Wider Trade Deficit
Because India is buying so much gold and oil, and also because US tariffs have hurt exports, India is now spending much more money on imports than it is earning from exports. This gap is called the current account deficit. When a country runs a big deficit, it needs more foreign currency to pay for all those imports. This increases the pressure on the rupee.
The current account deficit is now expected to reach over 1.3 percent of India’s GDP this year. That is significant. It means India is basically borrowing from the world to pay for what it is consuming. This is not sustainable long term, and it is making the currency weaker.
What the Reserve Bank of India Is Doing
The Reserve Bank of India, or RBI, is India’s central bank. It is trying to stop the rupee from falling too far by selling dollars from its foreign exchange reserves. When the RBI sells dollars, it increases the supply of dollars in the market, which should help stabilize the rupee. However, this is a limited tool. The RBI cannot keep selling dollars forever because its reserves would run out.
In recent months, the RBI has sold billions of dollars to try to protect the rupee. By October 2025, the RBI had increased its short dollar positions to around 63.6 billion dollars. This shows how hard the RBI is working to contain the rupee’s fall. However, some analysts are concerned that if the RBI keeps intervening at this rate, its ability to do so in the future might become limited.
The RBI is facing a difficult choice. It can either keep spending its reserves to prop up the rupee in the short term or save those reserves for a real emergency. The central bank’s governor has said that the RBI does not target a specific rupee level but instead lets the market operate. However, his actions show that the RBI is clearly concerned about how fast the rupee is falling.
Inflation and Interest Rates
India’s inflation has been low and well controlled in 2025, which is actually good news. Unlike some other countries where weak currencies have led to high inflation, India has kept prices relatively stable. This is one reason the government and the RBI believe the rupee’s fall is manageable.
However, inflation is not zero. When the rupee falls, imported goods become more expensive. This can push up inflation over time. For example, food items are already seeing significant price increases. Some vegetables are up 40 to 45 percent in retail prices. A weaker rupee will eventually add to these pressures.
The RBI’s decision on interest rates also affects the rupee. When interest rates are higher, foreign investors get better returns on their money if they invest in India. Lower interest rates make India less attractive. Most experts expect the RBI to cut interest rates by 0.25 percent at its December meeting, which could add more pressure to the rupee.
Global Economic Conditions Matter Too
Beyond India specific factors, global economic conditions are also playing a role. The US dollar has become very strong globally. The dollar index, which measures the strength of the US dollar against other currencies, has climbed above 100. When the US dollar strengthens everywhere, emerging market currencies like the rupee suffer because investors prefer to hold the safer US currency.
Also, traders and investors around the world are becoming more risk averse. They are moving their money into safe havens like US treasuries and the US dollar. This is especially true when there is uncertainty about US trade policy and geopolitical tensions. India, as an emerging market, is seen as higher risk and thus loses money to safer destinations.
Who Is Affected and How
Different groups of people in India are affected differently by the rupee’s fall. Students going abroad for education will find it more expensive to pay their fees because the same amount of dollars now costs more rupees. Anyone buying gold or sending money abroad will also pay more. Importers of goods face higher costs for their raw materials.
On the other hand, Indian exporters might actually benefit from a weaker rupee because they can sell their products at lower prices internationally while still making decent profits in rupees. Non resident Indians sending money home to their families will get more rupees for each dollar they send. However, these benefits are limited in the current situation because US tariffs are hurting exporters more than the weak rupee is helping them.
For ordinary Indians, the main impact will likely come through higher prices for imported goods, including fuel and food items that depend on transportation. The weak rupee makes these things more expensive, and consumers end up paying more at the shops.
What Happens Next
Market analysts expect the rupee to remain under pressure until something major changes. That something is likely to be either a successful trade deal between India and the United States or a reversal in global capital flows. If the two countries finally agree on a trade deal with concrete details, confidence in India would return and foreign investors might start buying Indian assets again. This would strengthen the rupee.
Some analysts believe the rupee could test the 91 level if current pressures continue. However, the RBI is likely to intervene more aggressively to prevent too much further depreciation. The central bank does not want the rupee to fall so far that it causes serious economic problems. In the longer term, if global conditions improve and the dollar weakens worldwide, the rupee could start recovering. Some banks predict the rupee could reach 86 to 87 by the end of 2026 if things improve.
Conclusion
The Indian rupee’s fall below 90 per dollar is not the result of one single reason but rather a combination of forces all pushing down at the same time. Foreign investors are nervous and pulling money out. US tariffs have hurt exports. The trade deal between India and America is stuck. Gold and oil imports are eating up dollars. Global conditions favor the US dollar over emerging market currencies. Together, these factors have created a perfect storm for the rupee.
However, it is important to remember that India’s economy remains fundamentally strong. The country has posted robust economic growth, corporate earnings are healthy, and inflation is under control. The rupee’s fall is partly the currency acting as a shock absorber for the economy, which is actually how currencies are supposed to work. The real test will be whether India can successfully negotiate a trade deal with America and whether foreign investors regain confidence in Indian markets. Until then, Indians should expect imported goods to be more expensive, and the rupee is likely to remain under pressure.
Source: Rupee opens at fresh low, sinks to 90.42 vs USD on heavy outflows & Rupee opens at fresh low, sinks to 90.42 vs USD on heavy outflows
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