Indian Rupee Stabilisation After Crossing 90: Signals, Drivers, and the Road Ahead
Indian Rupee Stabilisation After Crossing 90: The Indian rupee recently crossed the psychological level of 90 against the US dollar, an event that naturally triggered concern across financial markets and policy circles. However, recent movements suggest that the sharp phase of depreciation may be easing. Market observers now see early signs of stability, indicating that the worst pressure on the currency could be behind it, even though a clear long-term trend is yet to emerge.
Recent Movement of the Indian Rupee
After breaching the 90-per-dollar mark in the first week of December, the rupee entered a phase of heightened volatility. This level had long been viewed as a symbolic threshold, and crossing it highlighted the speed of the currency’s recent decline. From the beginning of the year until December 19, 2025, the rupee depreciated by around 5.2 percent, making it the weakest-performing major Asian currency during this period.
At present, the rupee is trading close to 89.94 per US dollar. While this still reflects weakness compared to earlier levels, it also shows that the currency has managed to pull back from its record lows, suggesting some easing of pressure.
Strength of Domestic Economic Fundamentals
Despite the currency’s decline, India’s underlying economic fundamentals remain relatively strong. One of the most supportive factors has been the moderation in global crude oil prices. Brent crude averaged about 63.6 dollars per barrel in November, representing a year-on-year decline of nearly 14.5 percent. This has helped reduce pressure on India’s import bill and supported the broader macroeconomic environment.
Inflation has also cooled sharply, falling below one percent, which has provided comfort to policymakers and investors alike. In addition, GDP growth has surprised on the upside, posting its strongest performance in six quarters. Under normal circumstances, such indicators would support a stronger currency, but external forces have continued to weigh heavily on the rupee.
Global and External Pressures on the Currency
The primary drivers of the rupee’s weakness have been global rather than domestic. Persistent foreign portfolio investor outflows have been a major factor. During the year, foreign investors withdrew more than Rs 1.55 lakh crore from Indian equity markets, putting sustained pressure on the currency.
At the same time, the trade deficit widened as merchandise exports declined sharply in October while imports rose. Import-dependent companies also increased their demand for dollars, adding to short-term pressure. Higher expectations of US interest rates strengthened the dollar globally, making emerging market currencies, including the rupee, less attractive.
Geopolitical uncertainty and delays surrounding the Indo-US trade agreement further affected investor sentiment. While the direct trade impact of US tariff actions on Indian exports has been limited, the confidence and sentiment channel played a much larger role in influencing capital flows.
Role of the Central Bank and Market Recovery
After touching record lows, the rupee staged a modest recovery from the third week of December. By December 22, it appreciated to around 89.57 per dollar. This rebound was supported by easing dollar strength, improved global risk appetite, and timely intervention by the central bank.
Liquidity measures, including a five-billion-dollar dollar-rupee buy-sell swap, helped stabilise market conditions. Rather than defending a fixed exchange rate level, the central bank has allowed a gradual depreciation, stepping in mainly to smooth excessive volatility. This approach has helped prevent panic while preserving foreign exchange reserves.
Valuation and Export Competitiveness
An important development has been the fall in the real effective exchange rate below 100. This shift suggests that the rupee has moved from being overvalued to slightly undervalued. From a long-term perspective, this could improve export competitiveness and support external balance, provided global demand conditions improve.
Outlook for the Indian Rupee
Looking ahead, the rupee’s trajectory will depend on several interconnected factors. Global interest rate expectations, the return of foreign capital inflows, clarity on trade negotiations, and overall risk sentiment will all play critical roles. While the breach of the 90 level was symbolically significant, it does not indicate economic distress.
India’s growth story, policy framework, and foreign exchange buffers remain strong. The current phase appears to be a temporary bump rather than a structural shift. As global conditions normalise and domestic strengths reassert themselves, a path of gradual stabilisation looks more likely than further sharp depreciation.