The rupee faces sustained depreciation pressure amid portfolio outflows, uncertainty over the U.S.–India trade deal, and softer RBI intervention. Higher U.S. tariffs, a surge in gold imports, and a record October trade deficit have intensified pressure, widening the current account gap. Foreign investment inflows have slowed sharply, while the dollar’s strength has compounded currency stress. Analysts expect the currency to trade in the 88.80–90.00 band unless a tariff-reducing trade deal materialises, which could trigger short-term appreciation. Meanwhile, steady bond yields, frontloaded RBI bond purchases, and expectations of a possible December rate cut are shaping market sentiment.
The Indian rupee is expected to remain under depreciation pressure in the coming days, with traders warning that the currency could edge closer to 90 per U.S. dollar unless the Reserve Bank of India (RBI) steps in more decisively. The rupee fell to a fresh record low of 89.49 on Friday (November 21, 2025), marking a 0.8% weekly loss.
According to currency traders, a combination of portfolio outflows, uncertainty surrounding the pending U.S.–India trade deal, and a perceived scaling back of the RBI’s defence of key exchange-rate levels contributed to the sharp decline. The move reportedly “caught the market on the wrong side,” and sentiment suggests continued pressure in the short term.
The INR had plunged to a new low against the US$ on November 21, 2025, breaching the 88.8 level that the RBI had been defending. Since then, it has regained some ground, trading around 89.28 on Tuesday, Nov25, 2025. As of Thursday, Nov 27, the INR was trading around 89.26 per US$.
Global headwinds and deepening trade gaps
Analysts noted that the 3.6% rise in the US$ over the past two months has pressured most currencies, including the Rupee. India, according to analysts, is grappling with twin external shocks: U.S. tariffs and elevated precious metal prices. These adverse geoeconomic and geopolitical conditions are weighing on the country’s merchandise trade deficit.
The rupee’s sharp depreciation is the result of several cumulative factors. Key among them is the 50% tariff imposed by the Trump administration, which dented Indian exports and contributed to a record trade deficit in October, further pushing the INR lower, analysts noted. In addition, soaring gold prices this year have fueled massive investment in gold and Gold ETFs, resulting in a 200% jump in demand in October and raising the gold import bill to US$ 14.72 billion, during the month.
The twin effects of weak exports and rising imports pushed India’s merchandise trade deficit to a record US$ 41.7 billion in October 2025. Consequently, India’s current account deficit is now likely to widen to 1.2% of GDP in FY26, up from 0.6% in FY25.
Furthermore, foreign investment inflows have also been soft, weighed down by tariff uncertainty and AI-driven market volatility in the U.S. The net FDI fell from US$ 5.7 billion in Q1 FY26 to US$ 1.9 billion in Q2, while FPI inflows have been minimal at just US$ 0.3 billion so far this fiscal year.
Tariff uncertainty drags on rupee performance
So far in 2025, the rupee has weakened 4.5%, underperforming most Asian currencies despite India’s strong macroeconomic backdrop and buoyant equity markets that remain close to all-time highs.
Industry sources noted that although the INR has underperformed peers such as the Chinese Yuan and Indonesian Rupiah, it is still outperforming structurally weaker currencies like the Japanese Yen and Korean Won, both of which remain weighed down by domestic policy challenges.
Analysts added that the rupee’s decline has been sharper against Asian currencies mainly from current account surplus economies. The INR is down 4% CYTD (Calendar Year-to-Date), compared with a 2.9% drop in the Indonesian Rupiah and 1.3% in the Philippine Peso. Meanwhile, most other Asian currencies have strengthened, led by the Chinese Yuan, which has been supported by the PBOC and SAFE (Currency Exchange policy of China’s central bank) through repeated interventions and strong policy signalling.
Analysts point out that recent U.S. tariff actions have hampered trade flows and foreign investment, exacerbating stress on the currency. They note, however, that concluding a trade agreement with Washington could offer some recovery momentum. Market participants now expect the rupee to stabilize in a wider 88.80–90.00 range, with the depreciation unfolding in a gradual “staircase-like” pattern.
That said, analysts consider it reasonably likely that a trade deal will be finalized before the end of 2025. Such an agreement could reduce the reciprocal tariff on India from 25% to a more typical Asian range of 15–20%. If this happens, they anticipate some near-term appreciation in the rupee—potentially toward 88—as the deal would meaningfully ease India’s current trade disadvantage.
Strengthening dollar and RBI decisions shape outlook
On the global front, the dollar index strengthened last week even as investors increased bets that the U.S. Federal Reserve may cut interest rates next month, following dovish comments from New York Fed President John Williams.
In the domestic bond market, India’s benchmark 10-year 6.33% 2035 government bond yield closed at 6.5665% on Friday. Traders anticipate that yields will remain between 6.52% and 6.60% in the coming days, with attention focused on liquidity trends and upcoming economic data releases.
The RBI posted net bond purchases worth Rs 148.10 billion (US$ 1.65 billion) in the week ended November 14, after buying bonds worth Rs 124.70 billion in the preceding week—its first round of bond buying in almost six months. However, these operations were believed to be frontloaded, prompting speculation that they represented replacement demand rather than a deliberate signal on yields
Currently, markets are awaiting the RBI’s monetary policy announcement on December 5 amid uncertainty over whether the central bank will cut interest rates or maintain its current stance. Some analysts expect a 25-basis-point repo rate cut in the December policy, arguing that forecasts for FY27 growth, inflation, and real rates point to a terminal repo rate around 5.25% based on a simplified Taylor Rule framework.
Conclusion
India’s near-term currency trajectory will hinge on how effectively policymakers navigate global volatility, widening trade gaps, and weakening capital inflows. While an anticipated U.S.–India trade deal and potential RBI interventions may provide temporary support, sustained depreciation risks persist amid high gold imports, tariff uncertainty, and a stronger dollar. Restoring stability will require stronger structural reforms, broader export growth, and consistent policy signalling to reinforce investor confidence and support a more resilient rupee over the medium term.
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FAQs
- Why has the Indian rupee been depreciating recently?
The rupee has weakened due to a mix of portfolio outflows, uncertainty over the pending U.S.–India trade deal, strong USD performance, and reduced RBI intervention at key levels.
- How have U.S. tariffs affected the INR?
The 50% tariff imposed by the U.S. has hurt India’s exports, widened the trade deficit, and increased pressure on the rupee.
- What role have gold imports played in the rupee’s decline?
A sharp rise in global gold prices triggered a surge in domestic demand and Gold ETF purchases, pushing October’s gold import bill to US$14.72 billion—adding further strain on the current account.
- Can the rupee recover if India signs a trade deal with the U.S.?
Analysts believe a trade agreement could reduce reciprocal tariffs to 15–20%, improving trade competitiveness and potentially strengthening the rupee toward 88 in the near term.
- What is the near-term outlook for the rupee?
Market participants expect the INR to trade between 88.80 and 90.00, with depreciation occurring gradually. A strengthening USD and global uncertainty will keep pressure elevated unless supportive policy measures emerge.
