Analysts point to three immediate causes for this year’s decline: a widening trade deficit, a lull in foreign inflows and a slow-moving US-India trade deal.India’s trade deficit hit a record $41.7 billion in October, largely due to higher gold imports and weaker exports. The impact has been compounded by US tariffs rising up to 50% on several Indian goods following disputes over Russian oil purchases.
These tariffs have driven up costs for Indian exporters and reduced their competitiveness. Uncertainty over when the US-India trade deal will be finalized has added to the pressure as exporters don’t know when tariff cuts will happen.
Foreign portfolio investors have also been net sellers for much of 2025, with returns of over Rs 1.48 lakh crore. There was a brief period of inflow in October, but this quickly reversed when trade negotiations between New Delhi and Washington stalled again. Foreign direct investment and foreign loans have also been subdued, which has further depressed the balance of payments.
The rupee’s weakness is not just a function of monetary flows. According to multiple reports, speculative positions have risen sharply, especially after the coin broke the 90 barrier. Once the rupee crossed that level, several exotic currency options were activated, further increasing volatility.
Measured tone of policy makers
The RBI, meanwhile, has taken a cautious intervention approach, in part because its short forward dollar portfolio limits heavy action. The central bank has allowed the currency to gradually adjust, while only intervening to curb erratic intraday movements.
Also read: Rupee from 10 to 90: The four-decade decline to its most vulnerable moment
India’s chief economic adviser Anantha Nageswaran said the decline is not a reason to panic and added that inflation has not been affected. He expects the currency to improve in 2026. The view within the Treasury is that the rupee’s decline reflects temporary trade disruptions that should ease once the US trade deal is concluded.
Can Rupee cross the 100 mark?
Analysts broadly agree that reaching 100 isn’t the base case at this point, but they also say it’s not impossible. Bonanza’s Abhinav Tiwari says the rupee could rise towards 97-100 in the next one to two years if several negative factors align.
He cites a few scenarios: a worsening trade war if U.S. tariffs rise further, a global risk wave if the U.S. Federal Reserve becomes more hawkish, or crude oil rising above $100 a barrel. Any of these would increase India’s import bill and put pressure on its balance of payments.
Tiwari says a switch from 90 to 100 would require another 11% depreciation, which translates to about 5.4% per year if the timeline is two years. That’s higher than India’s long-term trend, but similar to the 2025 pace.
The broader macro background is also important. India had a balance of payments deficit of $109 billion in the first half of FY26, and both foreign direct investment and external borrowing have remained weak.
Not all experts see the decline as the start of a long depreciation cycle. Rahul Kalantri, VP Commodities at Mehta Equities, says the decline to 90 is significant but sees limited chances of the rupee reaching 100 unless there is a major global shock.
He says India’s macroeconomic factors – GDP growth of 8.2% in the second quarter of FY26, strong services exports and foreign exchange reserves of about $690 billion – provide a strong cushion. He also pointed to the RBI’s role in smoothing volatility, arguing that the central bank’s intervention strategy remains effective in preventing disorderly moves.
The impact of the rupee near or above 90
The markets reacted cautiously rather than sharply. A weaker rupee tends to help exporters, especially IT and pharmaceutical companies, as their dollar earnings rise upon conversion.
But foreign investors tend to become more cautious as currency losses reduce returns when they repatriate money. Master Capital’s Ravi Singh says the immediate impact on the market will likely be reflected in sector-level differences, rather than a broad sell-off. Analysts say investors are watching to see whether the current decline is an overshoot or the start of a more sustained downtrend.
Currency traders are also keeping a close eye on crude oil as India remains one of the world’s largest importers. Any increase in global oil prices directly contributes to the trade deficit. Political developments can also influence the currency. President Vladimir Putin’s planned visit to India this week could shape discussions on energy supply and trade, especially as Russian oil imports come under increasing US scrutiny.
Short-term direction
The coming weeks are expected to be crucial for the rupee’s near-term performance. The RBI’s policy decision on December 5, updates on the US-India trade deal and trends in FPI flows will all be important signals. HSBC said that with each day without progress in trade talks, pressure on the rupee increases as importers continue to buy dollars while the supply of dollars remains inconsistent.
The broad consensus in the market is that while the rupee may remain weak in the 89.50-91.20 range in the short term, a decline towards 100 would require a series of severe external shocks.
Analysts say if the US-India trade deal is finalized early next year and tariffs fall to 15-25%, the rupee could recover towards 86-88. That could reverse some of this year’s weakness and calm speculative positions.
For the time being, the currency remains under pressure, but the move has been orderly. The decline reflects a convergence of global and domestic factors rather than a structural collapse. India’s service exports, strong domestic economy and large currency reserves provide support, but the rupee is likely to remain sensitive to global risks until the trading environment stabilizes.
A breakthrough of 100 is not inevitable, but it is not an impossible scenario either. Much depends on how the coming months will develop – from oil prices and foreign flows to trade negotiations and global risk appetite.
(Disclaimer: Recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the views of the Economic Times)
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