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What is the story about?
The Indian rupee experienced significant volatility against the US dollar throughout 2025, emerging as one of the weakest performing currencies in Asia. The partially convertible rupee depreciated nearly 5% against the dollar over the year, breaching the 90-mark multiple times in December and reaching a low of 91 on December 16.
The currency’s decline accelerated from May, hitting around ₹88 per dollar by the end of August.
Analysts noted that without timely intervention from the Reserve Bank of India (RBI), the rupee risked touching ₹90 per dollar. The December slide was primarily attributed to external factors, including uncertainties surrounding India-US trade negotiations, rising imports of gold and silver, and sizable withdrawals by Foreign Portfolio Investors (FPIs) from Indian equities.
“The rupee volatility this year has been mainly sentiment-driven by trade deal uncertainties. Despite strong fundamentals, persistent foreign outflows pressured the currency, with nuanced RBI intervention,” said Madan Sabnavis, Chief Economist at Bank of Baroda.
He added that a trading range of 88.50-89.50 per dollar could be expected once clarity on the trade deal emerges.
The RBI had implemented measures to support the currency earlier in the year. In October, it allowed banks to lend in Indian rupees to non-residents from Bhutan, Nepal, and Sri Lanka for cross-border trade, marking a step towards broader use of the rupee in international transactions.
Looking ahead, analysts project a gradual stabilisation of the rupee in 2026.
A median poll of 38 foreign exchange analysts between September 26-30 indicated the currency could strengthen modestly to around ₹88 per dollar by the end of December 2026, and trade near ₹87.94 by March 2026.
“I was expecting some kind of India-US trade deal by November, and that hasn’t happened. Still, if it materialises before the financial year-end, it should boost sentiment for the rupee,” A Prasanna, Head of Fixed Income Research at ICICI Securities Primary Dealership, was quoted as saying in a Reuters report.
However, some analysts caution that capital flows remain erratic.
While short-term depreciation is not expected to persist, underlying challenges such as high US tariffs and uneven foreign investment flows could keep the rupee under pressure.
Nomura and S&P Global Market Intelligence have forecast the currency could reach 92 per dollar by end-March 2026 if trade uncertainties continue.
India’s exports to the US were affected after steep tariffs came into effect in August, dropping 12% in September and 8.5% in October, before rebounding 22.6% in November. Sonal Varma, Nomura’s Chief Economist for India and Asia ex-Japan, highlighted that sustained high tariffs pose risks to India’s gains from shifting supply chains catering to the US market.
Overall, while external factors drove much of the rupee’s 2025 depreciation, experts expect measured recovery in 2026, contingent largely on trade negotiations and stable capital flows.
The currency’s decline accelerated from May, hitting around ₹88 per dollar by the end of August.
Analysts noted that without timely intervention from the Reserve Bank of India (RBI), the rupee risked touching ₹90 per dollar. The December slide was primarily attributed to external factors, including uncertainties surrounding India-US trade negotiations, rising imports of gold and silver, and sizable withdrawals by Foreign Portfolio Investors (FPIs) from Indian equities.
“The rupee volatility this year has been mainly sentiment-driven by trade deal uncertainties. Despite strong fundamentals, persistent foreign outflows pressured the currency, with nuanced RBI intervention,” said Madan Sabnavis, Chief Economist at Bank of Baroda.
He added that a trading range of 88.50-89.50 per dollar could be expected once clarity on the trade deal emerges.
The RBI had implemented measures to support the currency earlier in the year. In October, it allowed banks to lend in Indian rupees to non-residents from Bhutan, Nepal, and Sri Lanka for cross-border trade, marking a step towards broader use of the rupee in international transactions.
Looking ahead, analysts project a gradual stabilisation of the rupee in 2026.
A median poll of 38 foreign exchange analysts between September 26-30 indicated the currency could strengthen modestly to around ₹88 per dollar by the end of December 2026, and trade near ₹87.94 by March 2026.
“I was expecting some kind of India-US trade deal by November, and that hasn’t happened. Still, if it materialises before the financial year-end, it should boost sentiment for the rupee,” A Prasanna, Head of Fixed Income Research at ICICI Securities Primary Dealership, was quoted as saying in a Reuters report.
However, some analysts caution that capital flows remain erratic.
While short-term depreciation is not expected to persist, underlying challenges such as high US tariffs and uneven foreign investment flows could keep the rupee under pressure.
Nomura and S&P Global Market Intelligence have forecast the currency could reach 92 per dollar by end-March 2026 if trade uncertainties continue.
India’s exports to the US were affected after steep tariffs came into effect in August, dropping 12% in September and 8.5% in October, before rebounding 22.6% in November. Sonal Varma, Nomura’s Chief Economist for India and Asia ex-Japan, highlighted that sustained high tariffs pose risks to India’s gains from shifting supply chains catering to the US market.
Overall, while external factors drove much of the rupee’s 2025 depreciation, experts expect measured recovery in 2026, contingent largely on trade negotiations and stable capital flows.
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