MUMBAI: The rupee continued its free-fall Wednesday—a day the RBI began its monetary policy committee meeting in a piquant position given the many surprises the economy is witnessing from growth to currency fall—sliding past the 90-a-dollar mark for the second day, plumbing a new low of 90.29 in morning trade after opening flat at 89.96.
Wednesday marks the sixth consecutive bleeding session for the rupee as traders bet subdued trade and portfolio flows will keep Asia's worst performer under pressure without central bank intervention and analysts peg the next level for the beleaguered unit at 92-93.And despite this, chief economic advisor to the government V Anantha Nageswaran was audacious to say: "I'm not losing sleep over it (the steep fall in the rupee).”
The weakness has had no impact on inflation, he added, and said he expects the currency to recover in 2026.“It will come back next year. Right now, it's not hurting our exports or inflation. I am not losing my sleep over it. If it has to depreciate now probably is the right time,” he said at an industry event in Mumbai on Wednesday.
The rupee fell to a record low of 90.29 eclipsing its previous low hit a day earlier. It ended the day's session at 90.19, down nearly 0.4 percent on the day and shaving off more than 5.7 percent so far this year, putting it on track for its steepest annual decline since 2022, and making it the worst-performing Asian currency.
The plunge underscores a divergence in the domestic and external macroeconomic position of the nation. While GDP growth has been stronger-than-expected, punitive US tariffs and weak capital flows have piled pressure on the rupee.
"Every day that we do not have a trade deal, the forex demand from trade deficit and outflows keeps pushing the dollar higher, while forex supply is relatively thin and inconsistent," HSBC said in a note, which also added that "foreign investors are also losing patience. We had one month of net inflows in October, but without any more trade deal headlines since then, net flows have become flat."
"The longer it takes for a trade deal to come, the longer the pressure on the rupee is likely to persist," said Sakshi Gupta, principal economist at HDFC Bank and pegged the immediate resistance level of the rupee at 92-93.
Overseas investors have pulled about $17 billion from equities this year, while net foreign direct investment and overseas commercial borrowings have been soft, worsening the strain on the rupee. "The rupee has been weakening as the government and the Reserve Bank want to help exporters and may have kept the dollar well bid in the past few days," Anil Kumar Bhansali of Finrex Treasury Advisors said.
"Nationalised banks have been buying dollars at higher levels consistently. There was a deal at 90.0050 after the close of market hours on the trading platform. The stalled trade talks and heavy FPI outflows are causing this fall in rupee despite a weakening dollar index," he said, adding repo rate cut could invite further selling pressure on the rupee."
Meanwhile, ex-banker Uday Kotak, who founded Kotak Mahindra Bank, has warned businesses as the rupee breached Rs 90-mark saying this is “time to shake out of comfort zone”.
"Re@90, the proximate reason: foreign selling of our stocks both FPIs & PEs under FDI. Indian investors buying. Time will tell who is smarter. For now, foreigners seem smarter. 1 year nifty $return is 0. But this is a long game. Time for our businesses to shake out of comfort zone,” Kotak said in a post on X.
Radhika Rao, senior economist at DBS Bank said, “the authorities are likely to keep the rupee at competitive levels and in undervalued territory, as signaled by the correction in the real effective exchange rate to sub-100 levels.“
This is occurring at a time when a narrow CAD has lowered the reliance on foreign flows compared to the taper tantrum period. The recent intervention bias suggests that the currency will be allowed to find its equilibrium, to better reflect underlying macro shifts. The need to maintain the currency at competitive levels stems from the broader focus on manufacturing, unfavourable tariff differentials at this juncture and subdued portfolio flows outlook,” she said.
Anindya Banerjee, head of commodities and currency at Kotak Securities, said the plunge was fuelled by three immediate drivers: growing uncertainty around the trade deal, which has supported the dollar and created caution in EM currencies, including the rupee.
Banerjee added; “A wave of stop-losses being triggered above the 90 level, especially from leveraged traders and option sellers who were defending that zone; and finally steady importer demand, particularly from sectors like oil, metals, and electronics, which continues to absorb available dollar liquidity. With 90 now broken decisively, it becomes the key pivot. Sustained trading above this area may keep the door open for 90.50–91, while initial support lies near 89.80.”