Will Indians Deal In Lakhs Just Like Afghanistan: Why Indian Rupee Is Losing Its Value?

The Indian rupee has been weakening sharply in late 2025, hitting fresh record lows versus the U.S. dollar and remaining among the worst-performing emerging-market currencies this year. Bankers and traders alike are now talking about stronger action by the Reserve Bank of India (RBI) to “push back” against the currency’s decline, a move that may signal broader concerns about external risks, investor flows, and India’s trade position.

In this article we explain why the rupee is weakening, what factors are contributing to the slide, what RBI’s response has been, and how currency weakness affects Indian importers, exporters, financial markets and economic confidence. We also explore whether the RBI will intervene more forcefully, and the likely outcomes of such interventions.

Introduction: A Relentless Slide, a Nervous Market

Over the past month alone in late 2025, the Indian rupee has depreciated by roughly 2.5% against the U.S. dollar, repeatedly hitting fresh all-time lows, even as other Asian currencies gained ground. This weak performance stands in contrast with broader currency markets.

Two key forces are driving this slide:

• Persistent demand for dollars, especially from importers hedging future needs, and
• Foreign investor caution, particularly due to stalled trade talks and higher tariffs on Indian exports.

The combination of these forces has created what market participants describe as a near “one-way” slide, where selling pressure dominates and the rupee struggles to find sustained support from global currency trends.

Why the Rupee Is Weakening: Key Drivers Behind the Slide

The depreciation of the Indian rupee in 2025 has deeper roots than short-term fluctuations. A mix of trade, investment, and macro variables has contributed:

A. U.S. Dollar Demand & Hedging Pressures

Indian importers, especially those buying crude oil and commodities priced in dollars, have been increasingly hedging their future dollar requirements. This constant demand for USD puts downward pressure on INR (Indian rupee).

B. Weak Portfolio Inflows

Foreign investors have been cautious about Indian equities and bonds this year. Net sales of domestic equities by overseas investors have exceeded $18 billion in 2025, making India one of the largest markets experiencing net portfolio outflows.

C. Trade Uncertainty & Export Headwinds

The long-awaited U.S.-India trade agreement has been delayed, and tariffs on certain Indian goods, such as seafood and textiles, remain elevated. That dampens export competitiveness and reduces foreign currency inflows from exports.

D. Regional Currency Trends

While some Asian currencies, including the Thai baht and Chinese yuan, have appreciated over the same period, the rupee’s relative underperformance has made its weakness more pronounced.

2. RBI’s Response: Managing Volatility vs. Defending Levels

The Reserve Bank of India has multiple tools to manage exchange-rate pressures, from spot market interventions to adjustments in foreign exchange reserves and regulatory guidance.

The debate in financial circles today focuses on whether the RBI will push back more aggressively against the rupee’s fall.

What the RBI Has Done So Far?

In 2025, the RBI has intervened in the currency markets on several occasions by selling U.S. dollars and buying rupees, both in spot and forward markets, to break persistent one-way moves. These interventions were larger than routine operations and were aimed at engendering two-way price movement in FX markets.

Despite these interventions, the rupee continued to weaken toward and beyond the ₹91 per dollar mark, prompting renewed speculation that the RBI might again step in with decisive action.

Table: Rupee Performance & RBI Intervention Timeline (2025)

Below is a snapshot of key phases in the rupee’s performance relative to RBI actions this year.
 

The RBI has acted selectively, intervening heavily when momentum became one-sided, but it has also shown a willingness to let the market determine near-term levels when fundamentals shift, placing more emphasis on controlling volatility than defending a specific rupee figure.

3. Will the RBI Press Back Harder? What Bankers & Markets Expect

As the rupee continued weakening into mid-December, bankers and traders increasingly cited the likelihood of another decisive RBI intervention to curb the slide. They referenced past instances in 2025 when the central bank stepped in forcefully to interrupt single-direction moves in the currency.

That expectation stems from two considerations:

• Speculative position build-ups: When a currency trends persistently one way, it can trigger speculative positions that further accelerate the slide. Heavy intervention is a traditional tool to dissuade one-direction trading.

• External pressure: Continued outflows and hedging flows mean the rupee’s weakness is partly structural, and markets believe RBI may act again to restore balance.

However, it remains unclear whether future interventions will prioritise level defence (maintaining a specific exchange figure) or volatility management (ensuring orderly markets without defending a fixed rate). 

Earlier in December, reports suggested the RBI may tolerate a weaker rupee as long as fundamental conditions justify it, intervening mainly to prevent disorderly moves rather than to defend a floor beneath the currency.

4. Implications of Rupee Weakness for India’s Economy

The rupee’s depreciation has multiple implications — some potentially favourable, others risk-laden:

A. Export Competitiveness

A weaker rupee can make Indian exports less expensive in foreign currencies, potentially boosting volumes. For sectors like textiles, leather, and information technology, this can be positive. However, the ongoing trade stalemate and tariffs (especially with the U.S.) have muted these benefits so far.

B. Import Costs

India is a net importer of critical commodities like crude oil. Currency weakness raises import bills, contributing to inflationary pressure for fuel, plastics, and energy-intensive sectors.

C. Foreign Investment Flows

Continued rupee depreciation can deter foreign portfolio investors, as currency losses may outweigh equity returns, a factor reflected in the significant outflows seen this year.

D. Reserve Management

RBI’s interventions naturally draw on foreign exchange reserves. While India still possesses sizeable reserves, sustained defence at specific currency thresholds could risk depletion unless balanced carefully.

Conclusion: A Delicate Balance Between Intervention & Market Forces

The Indian rupee’s slide in late 2025, driven by persistent dollar demand, investor caution, and external trade headwinds, highlights the challenges of currency management in an increasingly interconnected global environment. 

Bankers’ speculation about stronger RBI action reflects both concern over continued decline and recognition that some degree of weakness is a normal market response to macro pressures.

The RBI’s approach has been measured so far, alternating between targeted interventions and tolerance of broader trends. Whether the central bank will again launch heavy-handed defence operations, or continue to prioritise volatility control within a market-determined exchange rate, remains to be seen.

For India, the key will be balancing support for export competitiveness, managing inflationary risks from import costs, and maintaining confidence in financial markets, all without overextending foreign exchange reserves. As 2026 unfolds, markets will continue to scrutinise RBI’s actions and rhetoric, while investors gauge the long-term trajectory of the rupee within a broader global currency landscape.

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LoansJagat Team

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