The Indian rupee has emerged as Asia’s worst-performing currency in 2025. After breaching the psychological level of 90 against the US dollar, the Indian currency took just 13 days to hit yet another historic low of 91 this week. Worryingly, it may remain under pressure in the near future, thanks to the endless wait for the India-US trade deal, persistent foreign portfolio investor (FPI) outflows, and thinning foreign direct investments.
Its fall from 85 to 90 in less than a year is one of the sharpest declines in recent years. The depreciation comes at a time when Asian currencies such as the Singapore dollar, Thai baht, and Malaysian ringgit are gaining ground. This means the rupee has been falling against other currencies too, as shown by the RBI’s Real Effective Exchange Rate Index that tracks movements against 40 currencies.
Clearly, the Indian currency is heading for its worst annual decline since 2022. However, the RBI seems unwilling to dip further into its $700-billion war chest. Per estimates, it has injected about $30 billion over the past eight months to address the rupee’s rout. This is in contrast to the previous episode when the central bank spent over $68 billion between 2022 and 2024 to prevent depreciation.
Like in the past, the RBI maintains that it will intervene only to stem volatility and not defend a particular level. But the change in its foreign exchange management strategy indicates the central bank’s willingness to let the rate adjust to the changed realities and use it as a macro stabiliser.
We must bear in mind that even if depreciation boosts exports, higher import costs neutralise the impact. Although cheap Russian oil imports are cushioning the current account, gold, silver, electronics, and other imports are piling pressure.
The other thing dragging the rupee down is a higher demand for dollars. With over $17.8-billion FPI outflows this year—the largest in two decades—the rising demand for the American currency is accelerating the rupee’s fall. Meanwhile, thanks to high tariffs and subdued global demand, exporters too are earning fewer dollars, contributing to dollar scarcity and pushing the rupee even lower. It will be essential to get the US trade deal going to avoid further currency fluctuations.