The Indian rupee on Tuesday breached the psychologically significant ₹90 mark against the US dollar, marking one of its sharpest declines since the Taper Tantrum era. The fall has been fuelled by a combination of stalled progress on the US-India trade deal, renewed foreign portfolio outflows—particularly from equities after two years of strong inflows—and the Reserve Bank of India’s clear preference for stepping back from active intervention, except in cases of extreme volatility.
Signs of strengthening in the US dollar index and rising activity in offshore non-deliverable forwards (NDF) have added further pressure. Analysts caution that linking the currency’s slide to weak trade data is misleading. India’s goods and services deficit for April to October stood at $78bn, only marginally higher than $70bn in the same period a year earlier, suggesting the narrative around deteriorating trade numbers may be overstated.
Since the US announced sweeping tariff hikes on 2 April, the rupee has weakened around 5.5%—the steepest fall among major economies. Yet volatility has remained contained, with the rupee displaying one of the lowest coefficients of variation at 1.7%. Economists say India’s higher tariff slab of 50%—compared with China’s 30% or Vietnam’s 20%—has weighed heavily on sentiment, with about $45bn worth of Indian exports, largely labour-intensive, expected to be hit.
The RBI’s Real Effective Exchange Rate (REER) index shows the rupee turning undervalued for a third straight month, falling below 100 as the trade war eroded its relative strength. Meanwhile, the Nominal Effective Exchange Rate (NEER) has slid from 92.1 in June 2024 to 84.6 in October 2025.
Market data indicates excess dollar demand of $102.5bn this year, with the RBI estimated to have intervened by about $30bn until October. But the central bank appears intent on avoiding defence of any specific level. The breach of ₹90 also triggered exotic option barriers, heightening volatility.
With the Monetary Policy Committee set to meet shortly, economists warn that cutting rates now could be misread as an attempt to shield the currency, undermining confidence in an otherwise resilient macroeconomic backdrop.
