The Indian rupee has slipped to a record low of ₹92 against the US dollar, unsettling investors and the wider public. What makes this depreciation notable is that it has occurred despite India maintaining steady economic growth and relatively contained inflation. Analysts argue that the rupee’s weakness reflects global pressures and capital flow dynamics rather than any deterioration in domestic fundamentals.
A key driver has been sustained foreign portfolio outflows. Over the past year, global investors have withdrawn billions of dollars from Indian equity and debt markets, a trend that has extended into early 2026. Higher returns on US assets, elevated bond yields, and persistent global risk aversion have made dollar-denominated investments more attractive. As foreign investors sell Indian assets, demand for dollars rises, placing direct downward pressure on the rupee.
Exporter behaviour has further compounded the stress. Many exporters are delaying the conversion of their dollar earnings, anticipating additional rupee weakness. This has reduced the near-term supply of dollars in domestic markets. At the same time, steady importer demand—particularly for crude oil and capital goods—continues to support dollar demand, widening the demand–supply imbalance.
What stands out in this episode is that the rupee has weakened even as the US dollar has softened against several major global currencies. While many emerging market currencies performed relatively better in 2025, the rupee still depreciated by nearly 5%. This divergence underscores the outsized role of India-specific capital flows rather than broad-based dollar strength.
The Reserve Bank of India (RBI) has adopted a measured stance. Despite holding substantial foreign exchange reserves, the central bank has refrained from defending any particular exchange rate level. Its focus appears to be on smoothing volatility rather than preventing gradual depreciation. Market participants expect the RBI to step in decisively only if currency movements become disorderly or pose risks to financial stability.
Crucially, the rupee’s decline does not point to a weakening of India’s economic fundamentals. GDP growth remains resilient, inflation is relatively well managed compared with global peers, and there are no immediate signs of structural stress. Economists view the depreciation as part of a broader global reallocation of capital rather than a loss of confidence in India’s economy.
Looking ahead, several external factors could influence the rupee’s path. Progress on a long-pending US–India trade agreement, easing global interest rates, or a turnaround in foreign investment flows could support a recovery. Some analysts believe the rupee could strengthen back below the ₹90 mark if global conditions turn favourable.
Until then, the currency is likely to remain under pressure, driven more by global capital flows and cautious central bank management than by domestic economic weakness.
