Rupee Plunges to Record Low of 91.72 Amid Major Outflows

Rupee Breaches 91.7 Mark in Historic Slide

The Indian rupee depreciated to an all-time low on Wednesday, January 21, 2026, crossing 91.7 against the US dollar. The currency touched 91.72 during the session, driven by a combination of persistent foreign capital outflows, unresolved trade negotiations with the United States, and broader geopolitical uncertainty. The USD/INR exchange rate closed at 91.7140, marking a 0.64% decline from the previous session and extending a period of sustained pressure on the currency.

This recent slide is not an isolated event. Over the past month, the rupee has weakened by 2.36%, and its depreciation over the last twelve months stands at 6.06%. The breach of the psychological 91-per-dollar mark follows a trend of weakening that saw the currency first cross the 90-per-dollar level in December 2025, signaling fragile investor sentiment.

Sustained Capital Outflows Drive Depreciation

A primary factor fueling the rupee's decline is the consistent withdrawal of funds by foreign investors. So far in January, foreign portfolio investors (FPIs) have pulled $1.7 billion from Indian equities. This follows a substantial net outflow of approximately $19 billion during the entirety of 2025. This exodus reflects investor caution regarding the Indian market amid global economic headwinds and specific domestic concerns.

The selling pressure from foreign funds directly impacts the currency market. As investors sell their Indian assets, they convert the rupee proceeds into US dollars, thereby increasing demand for the dollar and weakening the rupee. This dynamic has created a challenging environment for the Indian currency, with limited natural dollar supply to counter the outflows.

Trade Tensions and Tariff Pressures

The lack of a breakthrough in trade negotiations between India and the United States remains a significant overhang. The postponement of a trade agreement, coupled with steep US tariffs of up to 50% on certain Indian exports, has curtailed a key source of dollar earnings. Reduced export competitiveness limits inflows and exacerbates the demand-supply imbalance for the US dollar.

Furthermore, sustained demand for dollars from Indian importers and corporations hedging against further currency weakness has added to the pressure. The widening merchandise trade deficit, which reached $15 billion in December 2025, underscores the growing gap between India's import expenditures and export earnings.

Global Risk Aversion and a Stronger Dollar

Broader geopolitical tensions are also contributing to the rupee's weakness. Renewed trade disputes between the US and Europe, alongside other global uncertainties, have prompted a flight to safety among international investors. In such risk-averse environments, capital tends to flow towards safe-haven assets like the US dollar, strengthening it against emerging-market currencies, including the rupee. The dollar index, a measure of the greenback's strength against a basket of major currencies, has remained firm, adding to the external pressures.

RBI's Measured Intervention Strategy

The Reserve Bank of India (RBI) has been active in the foreign exchange market, intervening through dollar sales to manage the rupee's decline. However, market participants note that the central bank's actions are aimed at curbing excessive volatility and slowing the pace of depreciation rather than defending a specific level. This signals a tolerance for a gradual adjustment in the currency's value, guided by market fundamentals. The interventions have helped prevent a more disorderly fall but have not been sufficient to reverse the underlying downward trend.

Market Impact and Economic Implications

The currency's depreciation has had a ripple effect across Indian financial markets. Domestic equity indices like the Sensex and Nifty have seen losses, reflecting the fragile investor sentiment tied to foreign outflows. In the debt market, government bond yields have risen. For the broader economy, the weaker rupee increases the cost of imports, particularly crude oil, which could fuel inflationary pressures. It also raises the cost of overseas education and foreign travel for Indians.

Analyst Outlook and Forward View

Looking ahead, currency analysts expect the rupee to remain sensitive to developments in US-India trade talks and the trajectory of foreign capital flows. While the current momentum is weak, some macro models project a potential stabilization. Trading Economics, for instance, forecasts the rupee to trade at 90.40 by the end of the current quarter and potentially strengthen to 89.25 in 12 months, though such forecasts are subject to significant uncertainty. The market will continue to closely monitor the RBI's intervention strategy as a key variable in determining the currency's path in the near term.