Rupee sinks to record low near ₹92 per dollar despite strong growth signals

The Indian rupee slumped to an all-time low on January 29, skidding to ₹91.985 per US dollar, breaching its previous record of ₹91.965 touched just last week and edging perilously close to the psychologically critical ₹92 mark in the spot market.

The sharp fall came amid weak foreign capital inflows and a surge in demand for dollar hedging, forces strong enough to outweigh the tailwinds from India’s robust domestic growth. It marked the first time the rupee has traded so close to ₹92, underscoring mounting pressure on the currency in recent sessions.

So far in 2025, the rupee has declined 2%, and is nearly 5% weaker since US President Donald Trump imposed steep tariffs on India’s merchandise exports. The slide has been swift: after breaking past ₹91 for the first time just six trading sessions ago, the currency has since raced toward fresh record lows.

Market participants said the Reserve Bank of India (RBI) likely intervened before local trading began in an attempt to slow the pace of depreciation as the rupee approached ₹92. However, the central bank appeared reluctant to draw a hard line.

“The RBI seems more focused on smoothing sharp moves rather than defending any particular level,” a trader at a foreign bank told Reuters.

The central bank has repeatedly maintained that it does not target a fixed exchange rate and intervenes only to curb excessive volatility.

Strong growth, weak currency

The rupee’s decline has come despite solid economic fundamentals. Official data showed India’s gross domestic product expanded 8.2% in the quarter ended September 30, reaffirming its status as the world’s fastest-growing major economy.

Yet external pressures have dominated. Analysts point to a combination of high US tariffs, sustained foreign portfolio investor outflows, rising bullion imports, and growing anxiety among companies about further currency weakness.

Since the US tariffs took effect, the rupee has fallen 7.5% against the euro and an equal 7.5% against the Chinese yuan. On a trade-weighted basis, the real effective exchange rate (REER) slipped to 95.3 in December, its lowest level in a decade, according to RBI data.

More pain ahead?

Analysts at Goldman Sachs, quoted by Reuters, said that while elevated US tariffs on Indian exports are likely to ease over time, the delay is already hurting India’s external balances. The firm expects the rupee to weaken further to ₹94 per dollar over the next 12 months.

The analysts also noted that the RBI appears increasingly comfortable with greater flexibility in the exchange rate, adding that the central bank may use periods of rupee strength to rebuild foreign exchange reserves — a strategy that could cap sharp appreciation but allow gradual depreciation.

Meanwhile, corporate hedging behaviour has intensified the strain. Importers and companies with foreign currency exposure have ramped up dollar hedging to guard against further losses, while exporters have slowed dollar sales in the forward market. The resulting squeeze in dollar supply has amplified downward pressure on the rupee.

As a result, the Indian currency has underperformed most Asian peers so far in 2025, a stark contrast to the country’s strong growth narrative — and a reminder that, for now, global forces are dictating the rupee’s fate.