The Indian rupee tumbled to a fresh record low on Thursday, sliding past the 90-per-dollar mark despite global cues that briefly favoured emerging-market currencies following the US Federal Reserve’s latest policy action. According to Reuters, the rupee was trading near ₹90.42 per US dollar at 1:45 pm, marking its weakest level ever and underscoring the scale of pressures currently weighing on the currency.

The decline comes at a time when global financial markets are adjusting to the Federal Reserve’s decision to cut interest rates—a move that was widely expected but accompanied by a divided vote and a cautious forward outlook. While the Fed’s policy stance initially weakened the US dollar in global markets, the rupee failed to benefit from that temporary softness. Instead, persistent demand for dollars from corporates, merchant importers, and financial institutions exerted a decisive downward push on the currency.

Dollar Demand Overrides Fed Effect

In the immediate aftermath of the US Federal Reserve’s rate cut, the dollar index retreated to a near two-month low before stabilising modestly. Many Asian currencies showed mixed performance, reflecting global scepticism about how long the Fed’s easing cycle might continue and uncertainty surrounding the broader economic landscape in the United States.

However, for the rupee, the global easing in the dollar offered little support. Traders and bankers reported sustained dollar buying by both foreign institutions and private Indian banks. Much of this demand stemmed from corporates meeting their monthly and quarterly payment obligations, including imports settled in dollars. Merchant transactions, which typically peak at specific points in the business cycle, added additional pressure on the currency.

A senior banker quoted by Reuters noted that the fundamental issue was not the Fed’s guidance but the imbalance between outflows and inflows: “There is consistent dollar outflow pressure which is outweighing the supportive global cues.” This sustained buying has overshadowed any temporary relief the rupee might have gained from the global market’s reaction to the Fed’s rate cut.

Heading Toward Worst Annual Performance Since 2022

The rupee’s slump this week is part of a broader trend of weakness throughout 2025. The currency is now on track for its steepest annual decline since 2022, pulled down by a combination of domestic and external factors. A significant contributor to the rupee’s downward momentum has been uneven foreign portfolio flows. While there have been periods of FPI enthusiasm for Indian equities and debt, those inflows have lacked consistency and have often been overshadowed by periods of heavy outflows linked to global risk-off sentiment.

Compounding this is the recent escalation in US trade tariffs on certain Indian exports—a development that has heightened uncertainty around India’s trade outlook. The tariffs have not only created export-market challenges but have also weakened investor confidence, particularly among those sensitive to trade-related risks.

Analysts warn that unless India and the United States arrive at some form of trade accommodation in the coming months, external vulnerabilities for the rupee could intensify. A prolonged confrontation on tariff issues could lead to further export-sector strain and diminish foreign-exchange earnings, with knock-on effects on currency stability.

RBI’s Dollar-Rupee Swap to Add Liquidity

As markets digest the rupee’s latest decline, attention is turning to a key intervention tool: the Reserve Bank of India’s upcoming $5-billion dollar-rupee buy/sell swap, scheduled for next week. This operation is designed to inject rupee liquidity into the banking system.

The RBI has conducted several interventions over recent months to smooth volatility in the currency market. Some of these actions, combined with heavy inflows linked to a flurry of initial public offerings, have led to liquidity tightness within the banking system. The forthcoming swap is expected to address these imbalances by releasing rupee liquidity while absorbing dollar liquidity temporarily.

Bankers are anticipating strong participation in the auction, given the current shortage of liquidity in the money markets. Several treasury analysts have suggested that the operation could provide short-term stability, although they note that structural pressures on the rupee are unlikely to dissipate immediately.

The swap is also significant in the context of the RBI’s broader strategy: maintaining currency stability while ensuring domestic liquidity conditions align with macroeconomic goals. By pairing liquidity management with selective market interventions, the RBI has aimed to prevent disorderly movements without committing to a fixed exchange-rate stance.

Sitharaman Urges Caution on Politicising the Rupee’s Decline

Speaking at the Hindustan Times Leadership Summit 2025, Finance Minister Nirmala Sitharaman addressed concerns over the rupee’s record low. She emphasised that currency movements must be viewed within the larger framework of economic fundamentals rather than interpreted through narrow political narratives.

“The rupee will find its own level,” Sitharaman said, underscoring that exchange-rate volatility is a natural component of a globally integrated economy. She pointed out that during earlier periods—particularly when her party was in Opposition—the rupee’s depreciation coincided with high inflation and structural weakness in the broader economy. In contrast, she argued, the present economic context is markedly stronger, supported by robust foreign-exchange reserves, steady macroeconomic indicators, and healthy credit growth.

She appealed for restraint in how political actors and public commentators frame the rupee’s decline. “Currency exchange rates are extremely sensitive,” she cautioned. “This debate must be circumscribed by the realities of where the economy stands today.”

Her remarks suggest that the government is seeking to reassure markets while discouraging speculation or narratives that could amplify volatility.

Global Context: Mixed Signals and Persistent Risks

Beyond domestic factors, the rupee’s vulnerabilities are tied to global forces that have complicated exchange-rate dynamics throughout 2025. The Federal Reserve’s rate cut is widely seen as the beginning of a cautious easing trajectory, but the split vote signals deep uncertainty within the US central bank regarding inflation, growth, and financial stability. As a result, global investors remain cautious, frequently shifting between risk-on and risk-off positions—movements that can have immediate and large impacts on currencies like the rupee.

China’s economic trajectory, geopolitical tensions, and fluctuations in commodity prices have all contributed to an environment of heightened global unpredictability. For India, which relies heavily on imported crude oil and is increasingly integrated into global supply chains, these uncertainties translate directly into volatility in its balance of payments and exchange-rate pressures.

Looking Ahead: What Could Stabilise the Rupee?

Economists believe that the rupee’s path forward will depend on a combination of domestic resilience and external stabilisation. A favourable outcome in India-US trade talks could provide significant relief by restoring certainty to key export sectors. Similarly, consistent FPI inflows—supported by strong corporate earnings and a stable macroeconomic environment—could help offset the impact of persistent dollar demand.

The RBI’s dollar-rupee swap is expected to offer short-term breathing room, but the central bank is likely to remain active in managing volatility through both spot and derivative interventions. Ultimately, the rupee’s trajectory will reflect the interplay between global financial forces and India’s domestic economic fundamentals.

For now, the currency’s fall to 90.42 represents both a symbolic and structural challenge, illustrating the pressures that accompany India’s growing role in global markets. As policymakers and investors navigate the weeks ahead, the focus will remain on liquidity management, trade negotiations, and maintaining macroeconomic stability amid continued global uncertainty.