Why Is The Indian Rupee Falling?

This article explores why the Indian rupee rose for the second straight session, opening at around ₹89.65 against the US dollar, after recent weakness and likely intervention by the Reserve Bank of India (RBI). It explains what currency intervention means, why the rupee has been volatile in 2025, what RBI actions are taken or being discussed, and the implications for the economy and investors.

The Rupee’s Recent Bounce After Persistent Weakness

After hitting fresh record lows in late 2025, including breaching the 90 mark versus the US dollar, the Indian rupee staged a modest rebound in late December. On December 22, 2025, the rupee opened at around ₹89.65 against the US dollar, strengthening for the second session in a row following signals of increased activity by the Reserve Bank of India in currency markets.

Markets interpreted this uptick as likely due to RBI intervention, primarily through interventions in spot and forward forex markets to support the rupee, combined with a softer US dollar and some improvement in trade dynamics. Analysts also noted that volatility remains a central theme, dependent on both RBI actions and global market behaviour.

However, this uptick comes against a backdrop of continuing pressure on the rupee from external factors, a story that has played out over most of 2025.

Why the Indian Rupee Was Under Pressure in 2025

Over the course of the year, the Indian rupee has been one of Asia’s worst-performing currencies in 2025, weakening against the US dollar due to several structural and cyclical headwinds.

A confluence of factors has contributed to pressure on the rupee:

• Strong US dollar dynamics: A robust US economy and higher real yields have strengthened the dollar, drawing capital out of emerging markets like India.
• Foreign investor outflows: Volatility in global markets triggered FPI (foreign portfolio investor) withdrawals, amplifying currency depreciation.
• Trade deficits and external imbalances: Continued demand for imports (oil, gold, intermediate goods) coupled with sluggish export growth has widened the trade deficit, keeping downward pressure on the rupee.
• US-India trade uncertainties: Delays in concrete trade agreements have increased demand for dollars by importers hedging exposure, weakening the INR.

At times during the year, the rupee has tested key levels near ₹90 per dollar and even beyond, prompting discussions among currency traders and policymakers about the need for intervention.

What Does RBI “Intervention” Mean and How It Works?

To understand the recent market moves, it’s essential to explain RBI intervention in the foreign exchange market.

Currency intervention refers to actions by a central bank to buy or sell foreign currency in exchange for its own domestic currency to influence the exchange rate and reduce volatility. Central banks typically intervene when they feel the currency is moving too sharply in one direction or when excess volatility could harm financial stability.

In India’s case:

• The rupee operates under a managed float, largely market-driven but with active RBI involvement to ensure stability and prevent disorderly moves.
• The RBI can sell dollars from its reserves to support the rupee (by increasing supply of dollars in the market), or buy dollars to prevent excessive strengthening of the rupee.
• These actions can occur in both spot markets and non-deliverable forward (NDF) markets depending on where pressure is most acute.

Recent market commentary suggests that the RBI has stepped in to sell dollars in domestic markets to arrest the rupee’s freefall and reduce volatility around key psychological levels.

Rupee Movement: A Snapshot of Recent Levels

Before summarising the impact, here’s a quick table snapshot showing key rupee exchange levels over recent periods:

Recent USD/INR Levels
 

This table demonstrates that early weakness in the rupee spiked significantly beyond the 90 mark before recent interventions helped the currency retrace some losses. However, the rupee remains sensitive to global and domestic factors, causing oscillations around key level ranges.

What Markets Expect from RBI and Global Traders?

With continued pressure from corporate dollar demand and non-deliverable forward positions, traders and banks have urged the RBI to remain active in forex markets to ease volatility and prevent sharp declines.

Simultaneously, the RBI has been deploying a broader toolkit:

• Liquidity support: Announcing plans to infuse around $32 billion (₹2 trillion) of rupee liquidity into the banking system via bond purchases and swap operations, which can indirectly support financial conditions.
• Forward position management: Increasing outstanding forward sales, a sign of active engagement to control future expectations and volatility.

Many analysts say the RBI does not aim to peg or fix the rupee at any particular level but rather to manage sharp swings, prevent disorderly depreciation, and support confidence in markets.

Broader Implications for the Economy and Investors

For the economy:
A weaker rupee makes imports more expensive, potentially increasing inflationary pressures, especially for oil and fuel, and widening trade deficits. On the other hand, a relatively weaker currency can support export competitiveness by making Indian goods cheaper abroad, which can help export-oriented sectors.

For investors and markets:
Currency volatility affects equity markets, bond yields, and foreign investment flows. A stable or strengthening rupee can attract risk appetite, while persistent weakness can lead to capital outflows and cautious stances by foreign investors.

Conclusion

The rupee’s recent rise, opening around ₹89.65 to the US dollar for a second straight session, highlights the delicate balance in India’s currency markets between market forces and RBI interventions. 

Against a year marked by significant currency weakness and external pressures, the RBI’s active role in managing volatility has been evident, even as it allows market pricing to play its part.

The outlook for the rupee will continue to depend on global dollar strength, foreign investment flows, trade dynamics, and central bank actions. While short-term rebounds are possible with intervention, broader structural pressures, including trade imbalances and global financial conditions, will shape the medium-term trajectory of the Indian currency.
 

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