Beyond ₹90: Analyzing the Rupee’s Fall and Its Economic Ripple Effects in India

In December 2025, the Indian rupee touched a new record low of ₹90.5 per US dollar in intraday trade. This marked the weakest level in the currency’s history. Over the course of 2025, the rupee depreciated by roughly 5 to 6 percent, making it one of the weaker-performing major Asian currencies during the year.

The rupee has been on a gradual weakening path for many years, moving from the low ₹83 range in late 2023 to the mid-₹80s through 2024, before sliding more sharply in 2025.

This breach of the psychological 90-level threshold underscores persistent pressures from global trade tensions, capital outflows, and a resilient USD bolstered by US economic policies. Over the past three years, the INR has weakened by nearly 9.5% against the USD, with a sharper 4.7% decline year-to-date in 2025 alone. While such depreciation can enhance export competitiveness, it simultaneously erodes purchasing power and inflates import costs, posing significant challenges for India’s economy. This analysis examines the trend, its implications for consumers and businesses, and potential mitigation strategies.

1. The Depreciation Trend: A Data-Driven Overview

The Indian Rupee(₹) trajectory reflects a gradual erosion since late 2022, accelerating in 2025 amid factors such as elevated US interest rates, geopolitical uncertainties, and India’s widening trade deficit. The table below presents monthly closing exchange rates (INR per USD) from December 2022 onward, alongside month-over-month percentage changes. These figures, derived from historical market data, illustrate a net depreciation of 9.5% over the period, with 2025 witnessing the most volatility, including a 2.09% surge in July and a 2.3% reversal in March.

*Partial month data as of December 15, 2025.

The following chart visualizes this trend, highlighting the upward creep in the exchange rate (indicating INR weakening).

2. Why the Indian Rupee(₹) is Weakening

The rupee’s fall is driven by a combination of global and domestic pressures.

Stronger US dollar globally

The US dollar remained strong through 2024 and 2025 due to higher US interest rates and persistent global uncertainty. When US assets offer higher returns, global capital tends to move towards dollar-denominated investments, reducing demand for emerging market currencies like the rupee.

Foreign investor outflows

Foreign portfolio investors withdrew significant capital from Indian equity and bond markets in 2025. Large outflows increase dollar demand as investors convert rupees back into dollars, directly pressuring the exchange rate.

Current account deficit pressure

India’s current account moved into deficit during FY2025-26. In Q2 FY2026 alone, the current account deficit was around $12 billion, driven mainly by higher imports and slower export growth. A current account deficit means India requires more foreign currency than it earns, weakening the rupee structurally.

Import dependence

India remains heavily dependent on imports for crude oil, electronics components, fertilisers, and certain industrial inputs. A higher import bill raises dollar demand consistently, especially when global commodity prices remain elevated.

RBI’s exchange rate approach

The Reserve Bank of India has intervened intermittently to limit sharp volatility. However, it has avoided defending any specific exchange rate level. RBI policy focuses on orderly market movement rather than preventing depreciation entirely, especially when global factors dominate.

3. Implications for Consumers: Eroding Purchasing Power

For everyday consumers, a weaker ₹ translates to higher costs for imported essentials and discretionary items, exacerbating inflationary pressures. India imports over 70% of its crude oil requirements, and a 5% depreciation can add 1-2% to headline inflation through elevated fuel and transportation expenses. This ripple effect extends to groceries, where processed foods reliant on imported ingredients may see price increases of 3-5%.

• Electronics and Consumer Goods: Smartphones, laptops, and appliances could face 5-10% hikes, as manufacturers pass on costs from USD-denominated components.
• Personal Care and Luxury Items: Beauty products and imported cosmetics are likely to become 7-15% more expensive, straining middle-class budgets.
• Travel and Education Abroad: International trips or overseas studies now cost up to 9.5% more, while remittances from non-resident Indians, totaling over $100 billion annually, provide a offsetting boon, yielding higher INR receipts for families.

Economists project that sustained depreciation could push consumer price index (CPI) inflation toward 6% in early 2026, prompting households to prioritize essentials and explore hedging options like diversified savings in fixed deposits.

4. Implications for Businesses: Opportunities and Headwinds

Businesses experience a bifurcated impact: exporters gain a pricing edge, while importers grapple with margin compression. The 9.5% depreciation over three years enhances the competitiveness of Indian goods in global markets, potentially boosting export revenues by 5-8% for key sectors.

• Exporters’ Advantage: Information technology firms like TCS and pharmaceutical giants such as Sun Pharma stand to benefit, with USD earnings converting to 9.5% more INR. Textile and auto component exporters may see similar uplift, supporting India’s $450 billion merchandise export target for FY2026.
• Importers’ Challenges: Sectors dependent on raw materials, such as chemicals and automobiles, face input cost surges; for instance, servicing a $1 billion foreign loan becomes 9.5% costlier, equating to an additional ₹950 million annually. Supply chain volatility may necessitate inventory buildup, tying up working capital.
• Broader Economic Effects: Small and medium enterprises (SMEs) could encounter financing hurdles if banks tighten lending amid currency risks, while overall GDP growth may moderate by 0.2-0.5% due to imported inflation.

To navigate this, businesses are advised to utilize Reserve Bank of India (RBI)-approved hedging instruments like forward contracts or explore rupee-denominated trade agreements.

5. RBI Response and Policy Constraints

The RBI uses foreign exchange reserves to smooth excessive volatility but does not target a fixed exchange rate. India’s reserves remain substantial, providing a buffer against disorderly market moves.

However, defending the rupee aggressively can conflict with other goals such as controlling inflation and supporting economic growth. As a result, policy intervention remains selective and measured.

What to expect going forward

The rupee’s direction will depend on several external variables:

• US interest rate policy and dollar strength
• Foreign investor flows into Indian markets
• India’s trade balance and current account position
• Global commodity prices, especially crude oil

Short-term stability is possible if capital flows improve, but sustained strengthening would require easing of global dollar pressure and better trade balance dynamics.

6. Outlook and Strategic Recommendations

The rupee’s fall to record lows reflects global monetary conditions, capital flows, and trade dynamics rather than a sudden domestic crisis. While depreciation increases costs for consumers and import-dependent businesses, it also improves export competitiveness. The key adjustment for both households and firms lies in planning for currency volatility rather than expecting a rapid reversal.

The RBI holds forex reserves exceeding $650 billion, providing a buffer for interventions, though officials emphasize market-determined rates. Future stability hinges on US Federal Reserve rate cuts and domestic reforms to narrow the current account deficit. Short-term volatility persists, but long-term resilience could emerge from diversified trade partnerships.

Sources:

1. https://www.rbi.org.in/
2. https://www.reuters.com/world/india/rupee-hits-record-low-us-trade-stalemate-drags-outflows-pinch-2025-12-12/
3. https://economictimes.indiatimes.com/markets/stocks/news/indian-rupee-hits-record-low-what-it-means-for-commodity-prices-and-the-economy/articleshow/125800046.cms
4. https://www.xe.com/currencyconverter/convert/?Amount=1&From=USD&To=INR

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