Rupee Slide: RBI Allows Currency to Weaken Amid Outflows; Shifts Focus to Curbing Speculation
By TOI Business Desk | Updated Dec 05, 2025, 00:10 IST
India’s central bank, the Reserve Bank of India (RBI), has shifted its stance on managing the Indian rupee, allowing the currency to weaken amid ongoing external pressures. This move comes as the country experiences slowing dollar inflows, widening trade deficits, and heavy foreign investor sell-offs in domestic markets. The RBI’s strategy has moved away from defending specific exchange rate levels towards managing disorderly currency movements and curbing speculative pressures.
Rupee Hits Record Lows Amid Market Pressures
Over the past seven trading sessions, the Indian rupee has depreciated by approximately 1.3%, falling to a record low of Rs 90.42 per US dollar. This decline has pushed the rupee’s depreciation for the year to around 5.5%, making it Asia’s worst-performing currency in 2025. Sources familiar with the RBI’s approach revealed that the central bank no longer aims to defend the rupee at any fixed level. Instead, the focus is on preventing erratic fluctuations and speculative attacks on the currency. One insider commented, “It doesn’t make sense to spend reserves when fundamentally everything is against the currency.”
Context Behind the Currency Weakness
A combination of factors has weighed heavily on the rupee:
- Slowing Dollar Inflows: Foreign portfolio investors have reduced their exposure to Indian equities, with net sales reaching approximately $17 billion this year.
- Trade Pressures: The widening trade deficit, exacerbated by rising oil prices, has increased demand for dollars.
- Foreign Selling: Intense foreign institutional investor (FII) outflows have intensified pressure on the domestic currency.
In addition, key foreign investment channels such as foreign direct investment, external trade flows, and offshore fundraising have all slowed, further tightening dollar supply.
RBI’s Response and Market Sentiment
The RBI had been proactively supporting the rupee through sizeable dollar sales until recently. However, a source close to the central bank mentioned, “RBI does let the rupee move more than it normally would whenever the underlying demand for dollars warrants it.” This suggests a more flexible and market-driven management of the currency.
Despite the rupee’s depreciation, the RBI is prepared to step in to tackle speculative build-ups that could destabilize the markets. The central bank has maintained silence on public commentary regarding its currency management policies amidst these developments.
Market participants remain cautious amid this backdrop. While a weaker rupee can provide the RBI with additional monetary policy flexibility, the downside includes reduced attractiveness of Indian assets to foreign investors.
Sam Kongrad of Jupiter Asset Management noted, “A weakening Indian rupee is definitely a negative when it comes to investing in Indian equities,” explaining that the firm currently maintains a “neutral weight” position on India. According to stock market data, while the MSCI India index has gained roughly 7% year-to-date, the rupee’s weakness has eroded dollar returns to less than 2%, lagging compared to markets like South Korea and Hong Kong.
Outlook and Expert Opinions
Some investors hold out hope that easing trade tensions with the United States and potential inclusion of Indian assets in global indices might stimulate renewed foreign inflows, helping to stabilize the currency.
Meanwhile, India’s robust domestic growth fundamentals provide some comfort. The nation recorded strong GDP growth of 8.2% in the July to September quarter, which may help offset negative impacts from currency depreciation over time.
Chief Economic Adviser V. Anantha Nageswaran expressed a measured outlook on the currency’s trajectory, stating on Wednesday, “I’m not losing sleep over it.” He highlighted that the rupee’s slide has yet to impact inflation significantly and expects a recovery to begin in 2026. ### Recent Currency Movements and Upcoming Policy Announcement
The rupee briefly rebounded on Thursday, strengthening by 26 paise to Rs 89.89 against the US dollar following reports of RBI intervention and a softer US dollar. However, earlier in the day, it had touched a fresh record low of Rs 90.43, pressured by ongoing foreign selling and surging crude oil prices.
Key factors dampening market sentiment include:
- Uncertainty surrounding the India-US trade negotiations
- Rising oil costs impacting import bills
- Continued foreign portfolio outflows
Conversely, a weaker US dollar and expectations of a forthcoming US interest rate cut may provide some relief to the rupee.
The markets are now focused on the RBI’s monetary policy announcement scheduled for Friday. This comes at a time when India is experiencing accelerating GDP growth and easing inflation, despite ongoing geopolitical uncertainties.
About The TOI Business Desk
The TOI Business Desk is committed to delivering timely, reliable, and insightful business news to readers of The Times of India. Covering a breadth of sectors and global economic developments, the desk provides in-depth analyses and breaking updates essential for navigating today’s complex business environment.
This article has been compiled from reports by Reuters and PTI, reflecting the latest developments as of December 5, 2025.