Indian Rupee Breaches 91 vs USD for First Time in 2025

Rupee Hits New Low Amid Sustained Pressure

The Indian rupee weakened past the 91 per US dollar mark for the first time on Tuesday, December 16, 2025, establishing a new record low for the fourth consecutive trading session. The currency reached an intraday low of 91.1620, a decline of 0.43% from its previous close. This sustained depreciation highlights the growing pressure on the currency from both domestic and international factors, placing it among the worst-performing emerging market currencies this year with a decline of over 6%.

Foreign Outflows and Trade Deal Uncertainty

The primary drivers behind the rupee's recent slide are persistent foreign fund outflows and a lack of progress in the US-India trade negotiations. Foreign institutional investors (FIIs) have been significant sellers in the Indian equity markets, divesting equities worth ₹1,468.32 crore on Monday alone. So far in 2025, foreign investors have net sold more than $18 billion in Indian equities, marking a record annual outflow. This exit of capital creates a high demand for US dollars, thereby weakening the rupee.

Adding to the pressure is the prolonged uncertainty surrounding a potential trade deal between India and the United States. Hopes for an agreement have been repeatedly delayed, with reports suggesting a deal is unlikely before March 2026. The absence of a clear path forward has dampened investor sentiment and encouraged a cautious approach, contributing to the capital outflows.

Market Dynamics and Imbalances

The currency's decline is also fueled by a demand-supply imbalance in the domestic foreign exchange market. Importers are actively purchasing dollars to cover their costs, while exporters are reportedly holding back on converting their dollar earnings, anticipating further depreciation in the rupee. This behavior exacerbates the downward pressure on the local currency. Analysts note that even positive domestic data, such as a narrowing trade deficit in November, has failed to provide any significant relief to the falling rupee.

The Shifting Stance of the RBI

In previous periods of sharp currency depreciation, the Reserve Bank of India (RBI) typically intervened by selling dollars from its foreign exchange reserves to stabilize the rupee. However, the central bank's recent approach appears to be different. Market observers suggest that the RBI is allowing the currency to adjust to market forces rather than defending a specific level. This hands-off stance may be influenced by India's relatively low inflation, which stood at 0.71% in November. With inflation well below the RBI's target threshold, the negative economic impact of a weaker rupee is considered less severe, giving the central bank more policy flexibility.

Rupee's Performance Against Other Currencies

The rupee's weakness is not isolated to the US dollar. It has also depreciated against other major global currencies. The following table provides a snapshot of its exchange rates on December 16, 2025.

Analyst Outlook and Future Projections

Currency traders and analysts remain cautious about the rupee's near-term prospects. Some experts predict that the currency could weaken further and potentially touch the 92 per dollar mark this month if the current pressures persist. The consensus is that a meaningful recovery for the rupee is unlikely until there is a clear breakthrough in the US-India trade talks.

Despite the short-term bearish sentiment, global macro models offer a slightly different long-term view. According to Trading Economics, the rupee is expected to trade at 90.48 by the end of the current quarter. Looking further ahead, their models estimate a potential recovery to 89.18 in 12 months, suggesting that the current pressures might ease over time.

Broader Market Impact

The rupee's sharp fall has had a ripple effect across the Indian financial markets. The domestic equity markets saw a decline, with the Sensex and Nifty falling as foreign investors pulled out capital. The depreciation also affects companies that rely on imports, as it increases their costs. While a weaker rupee can make exports more competitive, the overall negative sentiment and uncertainty have so far overshadowed this potential benefit.

Conclusion

The Indian rupee's breach of the 91 level against the US dollar is a significant event driven by a confluence of factors, primarily foreign capital outflows and stalled trade negotiations. While the RBI's non-interventionist stance allows the market to find a natural equilibrium, it also contributes to short-term volatility. The future trajectory of the rupee remains heavily dependent on progress in international trade relations and a stabilization of foreign investment flows. Until then, the market is likely to remain on edge, closely watching for any new developments.