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Informist, Wednesday, Dec. 3, 2025

 

By Pratiksha

 

NEW DELHI – The Reserve Bank of India for months ensured that the impact of the hefty tariffs imposed by the US on India in August was not reflected significantly on the Indian rupee, as trade deal negotiations between New Delhi and Washington were underway. But, with the prolonged delay in the trade deal and growing restlessness among market participants, the central bank has appeared to loosen its grip, resulting in the Indian currency falling sharply beyond the psychologically-crucial 90-per-dollar mark Wednesday.

 

The rupee Wednesday unexpectedly fell below the 90-per-dollar mark to a record low of 90.2900, as importers and foreign portfolio investors bought the greenback persistently. The central bank was absent from the market for most part of the day, dealers said. Here it is important to note that the rupee breached the 90 per dollar mark just seven trading days after it fell below 89 for the first time.

 

"Nobody had expected this much of a fall in the rupee. There is no other reason other than the absence of the RBI. I think they (RBI) feel that they have spent a lot of dollars, but inflows and outflows are still not matching," said V.R.C. Reddy, head of treasury at Karur Vysya Bank. "I think the rupee is overly depreciated now due to the prolonged uncertainty on the India-US trade deal. Everybody had expected the trade deal to happen by October-November."

 

In August, the US imposed on Indian goods a steep tariff of 50%, half of which was imposed as a penalty for purchasing crude oil from Russia. Since then, both countries have been negotiating a trade deal, with India particularly looking at lower US tariffs on Indian goods while the US has sought more access to the Indian market.

 

While initiating the Bilateral Trade Agreement in February, Prime Minister Narendra Modi and US President Donald Trump had agreed to conclude a part of the deal by the fall of 2025. Since then, ministers in the Modi government, including Commerce Minister Piyush Goyal, have said the two sides will conclude a deal by November. In the latest development, India's Commerce Secretary Rajesh Agrawal Friday said the two countries are likely to agree on the framework for a trade deal within this calendar year. However, the uncertainty around the trade deal has dampened the risk appetite of investors.

 

Market participants said the central bank has already depleted its foreign exchange reserves at a time when there is no certainty on when the trade deal may come into place. The RBI defended the 88.80 per dollar mark for nearly two months before letting it go only on Nov. 21. Moreover, the active intervention also led to the RBI's net outstanding sales of dollar-rupee forward contracts rising to a five-month high of $63.61 billion at the end of October.

 

"I think 89.00 was protected for too long by the RBI. Now that the trade deal has still not happened and FII (foreign institutional investors) flows are negative, everything was pushing for depreciation in the rupee," said Ritesh Bhusari, deputy treasury head at South Indian Bank. "This is sort of a breakout depreciation due to all that pent-up demand (of dollars) in the market." India's foreign exchange reserves, which hit a one-year high of $702.97 billion in early September, have declined by almost $15 billion since then to $688.10 billion as of Nov. 21.

 

Given the recent shift in the central bank's intervention strategy, most market participants now expect the rupee to depreciate further until India clinches a trade deal with the US. A weaker rupee would provide India with greater trade competitiveness and could partially offset the impact of the US tariff hike. Most market participants expect the Indian unit to fall to 91 a dollar by next month, assuming US tariffs remain in place.

 

"Unless there is any positive development on the trade deal, you can't expect things to change materially for the rupee," Reddy said. "As of now, RBI is the only stabilising force to anchor rupee volatility."

However, some market players said the rupee may consolidate at 90.00-90.50 a dollar, given that the Indian currency has already partially adjusted to the impact of US tariffs. So far in 2025, the rupee has depreciated 5.3% against the dollar, making it the worst performer among its Asian peers. "I think the RBI has made exports somewhat attractive with such a depreciation. If the rupee goes beyond the 91.00 range, RBI will come in because without them, there will be no end to it (rupee depreciation)," Bhusari said.

 

The sharp depreciation of the rupee has also put a question mark on a likely reduction in repo rate this week by the RBI's Monetary Policy Committee. Whatever the case, with the lack of an India-US trade deal, the future direction of the Indian currency appears to lie entirely in the RBI's hands for now.  End

 

Edited by Ashish Shirke

 

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