Clipped from: https://www.financialexpress.com/business/news/rupee-the-worst-performing-asian-currency-in-2025/4092745/
2026, rupee to trade between 88-94 against the US dollar
When Trump imposed a 50% tariff on Indian goods, the rupee weakened further along with shocks from the H-1B visa fee hike. Further, consistent foreign outflows and higher gold prices impacted the rupee performance.
The Indian rupee saw a very volatile year in 2025. The domestic currency has depreciated around 5% in the year, marking it the highest depreciation in three years. It also remained as Asia’s worst-performing currency.
Since the Trump administration took charge in January, the rupee has been weak due to concerns over trade tariffs. The subsequent geopolitical tensions, such as the Russia-Ukraine war and the Israel-Iran conflict, along with India-Pakistan tension, also contributed to the headwinds. When Trump imposed a 50% tariff on Indian goods, the rupee weakened further along with shocks from the H-1B visa fee hike. Further, consistent foreign outflows and higher gold prices impacted the rupee performance.
Rupee’s performance in 2025
The rupee opened 2025 at 85.65, depreciated steadily to 87.4 levels till the beginning of March, thereafter recovering to 84 levels in May. However, punitive tariff by US weakened the Indian rupee against the greenback that pulled it lower, breaking the psychological level of 90 on December 3. It hit multiple record lows due to absence of a trade deal, and continuous foreign outflows (sold equities worth $17.9 billion in 2025). The Reserve Bank of India time and again intervened into the market to support the falling rupee but weren’t aggressive. On Tuesday, the currency ended at 89.79.
“Rupee volatility this year has been mainly sentiment-driven by trade deal uncertainties. Despite strong fundamentals, persistent foreign outflows pressured the currency, with nuanced RBI intervention. I see 88.50-89.50 as a fair trading range, expecting retracement there once the deal materialises,” Madan Sabnavis, chief economist, Bank of Baroda.
Despite dollar’s yearly decline of around 10%, the rupee faced heavy downward pressure—lagging peers like the Malaysian ringgit (+10.5%) and Thai baht (+8.2%). We typically view the rupee against the dollar, yet it has sharply depreciated versus major currencies: 18.5% versus euro, 13% versus pound, and 5.5% versus yen.
RBI’s latest bulletin
The RBI’s latest bulletin showed the real effective exchange rate (REER) dropped to 97.51 in November from 100.19 in July, its lowest since February 2019, indicating the rupee is undervalued against a basket of 40 currencies.
“This reflects global currencies strengthening as investor preferences and rate cycles evolve, not just dollar strength. Euro and Pound gained against the dollar, so rupee declines against them appear larger on a trade-weighted basis,” said Kunal Sodhani, treasury head-Shinhan Bank.
The journey of rupee from 89 to 91 happened in less than three weeks. The rupee first breached the psychological 91/$ level on December 16, prompting RBI intervention to curb speculation and pull it back to 89. The RBI’s dollar short forward book rose $10 billion to $63 billion in September-October but was managed down from its February peak of $88.75 billion.
“The RBI was uncomfortable with one-sided rupee depreciation, which is why they stepped aggressively last time. The central bank has decisively curbed speculative positions when needed, as seen in the last 2-3 instances. It has also signalled markets that they can’t rely on the RBI indefinitely,” said Ritesh Bhansali – deputy CEO at Mecklai Financial Services. He added that the RBI also have limits to spend their reserves amid weak sentiment and foreign outflows.
Having said that, the RBI followed a more open approach rather than defending strict levels. “The focus is on reducing disorderly spikes, not targeting a specific rupee level. This has naturally led to wider trading bands and larger intraday moves. Lower domestic inflation reduces the need for aggressive currency defense,” said Sodhani.
The RBI also proposed measures to promote internationalisation of the rupee in the October policy. The measures include establishing transparent reference rates for currencies of India’s major trading partners, permitting authorised dealer banks to lend in rupees to non-residents from Bhutan, Nepal, and Sri Lanka for cross-border trade, and allowing wider use of special rupee vostro account (SRVA) balances.
Though internalisation of rupee is a long way to go, experts believe that these steps are a welcome move and shows the necessity of pushing rupee to the forefront.
The sharp rupee volatility in the year also prompted Indian corporates to increase hedging their foreign exposures. The share of unhedged external commercial borrowing (ECBs) was 26.1% in March 2025 compared to 45% two years back, the RBI data showed.
Economists and currency analysts expect rupee to face downward pressure till India signs a trade deal with the US.
“The trade deal’s latest March deadline adds three more months of uncertainty. The RBI is currently defending the rupee in the 89-90 range, but can’t sustain it for long. I expect rupee to remain under pressure in H1 2026 and afterwards see some appreciation,” said Anitha Rangan, chief economist, RBL Bank. She has projected the rupee to trade in the range of 90-93 for 2026.
Meanwhile Anindya Banerjee, head – commodity and currency research at Kotak Securities expects support for the INR following weakness of the dollar. “The rupee faces strain in January and March 2026 likely hitting 92,” he added. While Shinhan Bank’s Sodhani forecasts rupee to trade in the range of 88.20-94.00 in 2026.
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