While traders expect the Reserve Bank of India (RBI) to step in early next week to push the pair away from the psychologically important 90-mark, economists and treasury officials warn that the broader trend of depreciation remains intact. The 90-mark doesn’t seem quite distant now, in the absence of a trade deal.
Market participants attributed Friday’s fall to a combination of factors, including the RBI’s absence after weeks of defending the 88.8–89 band, cascading stop-loss triggers, persistent US dollar demand from importers, and growing uncertainty over the delayed India-US trade deal.
Comments from the RBI governor that the rupee has no “specific target” and its weakness reflects global dollar strength and geopolitical tensions only added to the nervousness.
The move was also accompanied by a softening in US 10-year Treasury yields from 4.15% to below 4.05% because of mixed US labour market data, which lowered hopes of another rate cut by the US Federal Reserve to about 40%, strengthening the dollar.
Despite strong fundamentals of the domestic economy and a weaker dollar, the Indian rupee has depreciated 4.4% since April.
“I don’t think the pace of the depreciation story is over,” said Gaura Sengupta, chief economist at IDFC First Bank.
Despite a relatively contained current account deficit of 1.3% of GDP, India’s capital flows remain weak. Foreign portfolio investors (FPI) have stayed away even as other emerging markets saw inflows, largely because Indian equities haven’t corrected enough to offer attractive dollar-adjusted returns, Gupta said.
So far in 2025, foreign investors have withdrawn $16.4 billion from Indian equities, according to data from National Securities Depository Ltd (NSDL). Overseas investors had pumped in a net of $124 million in 2024.
The RBI’s task has become more complicated because it entered the current financial year with a large net short forward book, reducing its flexibility to sterilize spot-market interventions without tightening rupee liquidity.
After heavy dollar selling in October, which drained ₹1.5 trillion worth of rupee liquidity from the banking system, the central bank has been forced to moderate its direct defence of the currency to avoid choking domestic financial conditions.
Treasury officials believe this is why intraday volatility has risen. “People realized very quickly that there was no RBI at 89.74. Once that level broke, the fall then onwards to 89.50 happened in five minutes,” said a senior dealer at a state-owned bank.
Even so, traders believe the RBI will not allow a disorderly fall. “You will see the RBI again stepping in around 90.00 – 90.50. They won’t let the rupee free-fall,” said Ritesh Bhansali, deputy chief executive officer at Mecklai Financial Services.
Bhansali expects the rupee’s near-term range to shift to 88.5–90.5, adding that the currency is now fundamentally undervalued on a real effective exchange rate (REER) basis, the measure of a currency’s valuation relative to a basket of other currencies.
Bhansali expects a temporary appreciation toward 87-88 once the India-US trade deal is announced, which he expects before the end of 2025, but emphasized that the move will be short-lived.
Sengupta, too, said any relief from an India-US trade deal will likely be fleeting.
“It may take USD/INR back to 88 or even below 88 briefly, but once the euphoria fades, depreciation will continue. The problem is capital flows, not the current account,” she said.
According to YES Bank’s economics team, the rupee remains under pressure from a worsening trade deficit, driven by a surge in gold imports, and relatively lower financial flows.
Their latest report warns that the BoP (balance of payments) is now on a knife-edge, with FY26 likely to end with a small deficit and FY27 facing continued pressure if inflation rises again. The bank sees the rupee-dollar pair “capped at 90″ for March under a trade deal, and 89.50–90.00 without one.
Traders expect the rupee to grind weaker through the year. “RBI has less firepower now. We see another 50–60 paisa depreciation in the near term, and then 15–20 paisa each month,” said a senior dealer, adding that year-end levels near 92 are plausible if outflows persist.
Still, markets will take their cues from Monday. “If the rupee stays beyond 89 for 2–3 sessions, that becomes the new benchmark,” said Madan Sabnavis, chief economist at Bank of Baroda.
Importers are front-loading purchases, expecting further weakness, while traders remain wary of a sudden RBI re-entry. For now, the consensus is clear that a trade deal may offer momentary relief, and the RBI will slow the pace of decline, but the rupee’s broader depreciation trend isn’t over. Capital flows must revive before the currency can sustain any meaningful recovery.
