Clipped from: https://www.thehindubusinessline.com/data-stories/analysis-why-is-the-rupee-sinking/article70403884.ece
The more concrete reason behind the rupee depreciation is the foreign portfolio investors pulling money out of both equity as well as debt market.
The RBI has been intervening in a limited way in the forex market and allowing the rupee to depreciate gradually. | Photo Credit: alexsl
The rupee crossing the 91-mark against the dollar on Tuesday has sent alarm bells ringing. The 6 per cent depreciation in the rupee against the dollar so far this year is a little excessive compared to the 3 per cent annual depreciation witnessed in the USD-INR pair since 2000. But if we consider individual years, the rupee has lost far more. For instance, it lost 11.3 per cent in 2022, 9.2 per cent in 2018 and a whopping 24 per cent during the global financial crisis in 2008.
The reasons for the current slide are many. One, the ongoing trade war with the US has put Indian exporters at a disadvantage. The RBI is, therefore, willing to allow the rupee to depreciate to make their products competitive in the overseas market. China had also allowed the yuan to depreciate over 10 per cent in 2018, during the trade war with the US. The RBI has been intervening in a limited way in the forex market and allowing the rupee to depreciate gradually. It has net sold about $45 billion of dollars this calendar year and is using a mix of forwards and exchange traded derivatives to control the rupee.
This limited intervention appears to be sending the signal to forex market speculators that they can take short positions in the USD-INR pair in the offshore non-deliverable forward market. These positions appear to be accelerating the depreciation in recent weeks, ever since the 90-level was breached.
The more concrete reason behind the rupee depreciation is the foreign portfolio investors pulling money out of both equity as well as debt market. While they have pulled ₹17,242 crore out of equity market in December 2025, they have net sold ₹8,977 crore of fixed income securities in the same period. They had been net purchaser of Indian debt between July and November this year, which had been mitigating the outflows in equities.
But it needs to be recognised that there are several factors supporting the rupee at this point such as the weakness in the dollar, higher bond yields in India, the resilience displayed by exports in November and the strong showing by India inc. in recent quarters. It may therefore just take one small trigger to reverse the slide.
Published on December 16, 2025
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