The Indian rupee has plunged to an unprecedented low. On December 2, 2025, it opened at 89.70 per US dollar and soon weakened further to 89.85 — a drop of 32 paise from the previous closing value. Overall, the rupee has depreciated nearly 4–5% against the US dollar since the beginning of 2025. This slide has come just ahead of the RBI’s monetary policy meeting, despite India recording a strong GDP growth rate of 8.2% in the second quarter.
The currency’s decline reflects both global and domestic pressures. Even as India’s economic indicators show resilience, the downward spiral of the rupee brings forward a critical question: Why has the currency fallen so sharply? And more importantly, how will this depreciation shape the lives of citizens and the broader economy?
Key Drivers Behind the Rupee’s Downturn
A major force behind the slump lies in the rising demand for the US dollar. India’s merchandise import bill — fuel, commodities, industrial inputs, and raw materials — climbed significantly, widening the trade deficit. More dollars were needed to pay for imports, while fewer dollars entered the economy through exports. This imbalance pushed demand beyond supply, exerting heavy pressure on the rupee.
Foreign capital movements deepened the strain. Foreign institutional investors, in particular, withdrew funds from Indian markets, reducing dollar inflows. This consistent outflow of foreign money shrank liquidity in the forex market and eroded the rupee’s support structure, making it more susceptible to further depreciation.
Global conditions added another layer of stress. The US dollar strengthened worldwide, increasing the cost of imports for India — especially crude oil and essential commodities. Emerging market currencies absorbed the shock, with the rupee among the hardest hit. Unfavorable risk sentiment, elevated oil prices, and a dominant dollar combined to accelerate the currency slide.
Additionally, many corporations and import-heavy sectors rushed to secure dollar positions, anticipating further depreciation. This frontloaded demand for currency added more pressure. As foreign investors exited, capital flight intensified, reducing the available dollar pool and amplifying volatility.
Impact on Citizens and Everyday Life
The consequences of a weaker rupee are immediate and tangible. Imported products — smartphones, electronics, fuel, fertilizers, edible oils, industrial components — become more expensive. Businesses face rising production costs, which often transfer to consumers through higher retail prices, fueling inflation.
Any expenses linked to the dollar — international travel, overseas education, foreign medical treatment, cross-border services — increase significantly. Household budgets, especially those planning international commitments, can be severely disrupted.
Industries dependent on imported inputs, including automotive, aviation, electronics, power, and chemicals, experience shrinking profit margins. Many firms may either absorb financial losses or raise prices, burdening end consumers.
Broader Economic Effects
A sharp drop in the rupee risks widening India’s current account deficit since imports grow costlier while export benefits take time to materialize. Rising inflation restricts the Reserve Bank of India’s ability to cut interest rates, potentially slowing investments and consumer activity.
Currency instability tends to weaken investor sentiment. A falling rupee may discourage foreign participation, trigger additional capital exits, and increase volatility in equity markets. For the government, depreciation translates into higher subsidy costs for fuels and fertilizers, greater external debt servicing expenses, and additional fiscal stress.
In essence, a declining rupee affects not just purchasing power and household expenses — it influences inflation dynamics, economic growth, capital flows, fiscal stability, and the broader macroeconomic landscape.
What Could Drive Recovery?
A potential rebound depends on several key developments:
- Reduced import-driven dollar demand, possibly through lower global commodity and energy prices or an improved trade balance.
- Renewed foreign capital inflows, including FDI or portfolio investments that strengthen market confidence.
- Stabilisation of global dollar strength, coupled with easing commodity and oil prices.
- Improved forex liquidity, creating a healthier supply-demand environment in foreign exchange markets.
Until these conditions shift in a meaningful direction, the rupee may continue to face sustained pressure.
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