Rupee falls past 91 on hedging demand, outflows as US trade stalemate drags

By Admin

17 Dec, 2025

The Indian rupee has crossed a historic milestone, breaching the 91-per-dollar mark for the first time, reflecting sustained pressure from global and domestic headwinds. Increased hedging demand, heavy portfolio outflows, and prolonged uncertainty over U.S.-India trade negotiations have combined to weaken the currency further, placing it among the worst performers in Asia this year.

Rupee Hits Record Low Amid Persistent Pressure

On December 16, the rupee slipped 0.3% to 91.0750 against the U.S. dollar, marking its fourth consecutive session at a record low. The currency had already crossed the 90 level earlier this month, but continued selling pressure has pushed it deeper into uncharted territory. Year-to-date, the rupee is down more than 6%, making it the weakest-performing currency in Asia so far in 2025.

Portfolio Outflows and Hedging Weigh on the Currency

A major driver behind the rupee’s decline has been persistent foreign portfolio outflows. Overseas investors have sold over $18 billion worth of Indian equities this year, putting the market on track for its largest annual outflows ever. These exits have also impacted domestic equity benchmarks, with the BSE Sensex and Nifty 50 both declining around 0.6% on the day.

At the same time, the maturity of positions in the non-deliverable forwards (NDF) market has led to heightened hedging activity, adding to near-term pressure on the currency.

Central Bank Intervention Limits Sharp Falls

Despite the weakness, traders noted that dollar sales by state-run banks likely on behalf of the Reserve Bank of India helped slow the rupee’s decline. The RBI has indicated a willingness to tolerate a weaker currency as India’s external sector faces multiple challenges, including trade disruptions and volatile capital flows. From its year-to-date peak of 83.77 in May, the rupee has now depreciated over 8.5%.

Trade Talks Key to Any Reversal

Analysts remain cautious about the rupee’s outlook, stressing that a meaningful recovery is unlikely without progress in U.S.-India trade negotiations. Steep U.S. tariffs on Indian exports have weighed on trade and investment sentiment, contributing to currency weakness.

MUFG, in a note, stated that while the path of least resistance still points to a higher USD/INR due to tariff-related uncertainty, the bank is hesitant to chase further gains at current elevated levels, suggesting near-term volatility rather than a sharp rebound.

Exports Offer Some Relief

There are, however, a few supportive factors. India’s exports showed a rebound in November, with shipments to the U.S. rising 21% year-on-year. This improvement helped narrow the merchandise trade deficit to a five-month low of $24.53 billion. Resilient domestic economic growth has also cushioned some of the immediate impact of tariffs, easing pressure on policymakers to rush a trade agreement.

India’s trade secretary recently confirmed that discussions with the U.S. are ongoing, with efforts underway to close a deal “sooner than later.”

Outlook Remains Cautiously Weak

In the near term, the rupee is expected to remain under pressure as hedging demand, capital outflows, and trade uncertainty persist. While export growth and central bank intervention may prevent a disorderly slide, a sustained recovery will likely depend on a breakthrough in U.S.-India trade talks and a stabilization in global capital flows.