Rupee Breaches 90 Against US Dollar Amid External Pressures

• The Indian rupee (₹) fell past the psychological 90 mark against the US dollar, hitting an intra-day low of ₹90.29 and settling at ₹90.19, marking a 5.5% depreciation since April 2025.
• The decline coincides with US reciprocal tariffs, high commodity prices, and foreign outflows.
• Foreign Portfolio Investors (FPIs) have pulled out $17.3 billion from the Indian equity market in 2025.

Key Drivers of Depreciation

• Trade and Tariff Pressures:
  • High 50% US tariffs on select Indian goods.
  • Rising gold and silver prices driving record imports, widening the trade deficit.
• Capital Outflows:
  • Net FPI sale of $800 million in the first three days of December.
  • Large private equity divestments during marquee IPOs.
• Commodity Imports:
  • Expensive fuel, metals, and electronics imports increase external demand for dollars.
• Market Dynamics:
  • Offshore bets against the rupee contributed to volatility.
  • Divergence observed between equity markets (Sensex > 86,000) and currency depreciation, highlighting structural decoupling of equity inflows and FX movements.

Economic Implications

• Imports costlier: Fuels, electronics, and metals become more expensive, raising inflationary pressures.
• Overseas expenses rise: Education, travel, and medical costs increase.
• Exports and remittances benefit: Depreciation makes Indian exports more competitive and foreign remittances more valuable.
• Current Account Deficit management: Controlled depreciation can help RBI conserve reserves and support trade competitiveness.

Policy and Market Response

• RBI intervention: Limited action to cap sharp fall; rupee managed at ₹90.21.
• Controlled depreciation strategy: Authorities appear to allow the currency to find its equilibrium, prioritizing export competitiveness over short-term stabilization.
• Near-term volatility expected: Clarity on India–US trade talks and commodity price trends will determine the rupee’s trajectory.