INR Breaches 90-Mark: Geopolitical Drivers, Speculations, & Measures

By examining a long-term examination of the USD–INR movement alongside the Dollar Index clearly shows that episodes of rupee depreciation are overwhelmingly driven by the global dollar strength, rather than the domestic macroeconomic fragility

Dec 10, 2025 · 4 min read

Rupee, US dollars, RBI, Reserve Bank of India, INR, FTA, Indian rupee, Vietnam, China, US, India

Recently, the Indian rupee (INR) breached a (psychologically) important level of 90, against the US dollar, raising concerns among different stakeholders, since it is one of the quickest falls in recent times after the heady days of Taper Tantrum. The decline in the value of the currency is being driven to the edge by a trifecta of limbo in the US-India trade deal, foreign portfolio investment (FPI) outflows, equities (after two years of robust inflows), and Reserve Bank of India (RBI)’s clear stance of distancing itself from an "interventionist regime" while wagering all it takes on excessive volatility by traders, arbitrageurs, and jobbers. Separately, offshore non-deliverable forwards (NDF) have also gained momentum, while signs of resurgence in the Dollar index are quite palpable.

Since the beginning of the current financial year, the US has been announcing sweeping tariff hikes across economies, and the INR depreciated by ~5.5% against the USD, notwithstanding sporadic phases of appreciation owing to optimism over a positive, mutually beneficial conclusion.

Yet, the INR is not the most volatile. Analysis of the Coefficient of Variation (CV) indicates that the INR is one of the least volatile currencies since April 2, 2025 (~1.7%). This clearly indicates that the high slab of 50% tariff imposed on India by the US is one of the major factors behind the current phase.

The flip side to it is that the negative numbers on trade data have been oversold to the market: the decline in the value of the rupee, as ascertained by a section of the market to negative trade data, is not factually correct. The overall goods and services deficit (April-October) stood at US$78 billion, marginally higher than US$70 billion (the same period in the previous year).

Current Account Deficit

Many have also been pointing towards the widening current account deficit (CAD) as responsible for the decline in INR. In Q2 FY26, India’s CAD widened to -1.3% of the GDP, as compared to -0.3% in Q1 FY26.

The current trajectory of the CAD and the associated currency movement falls well within the familiar range of India’s external adjustments, shaped as much by global portfolio flows.

The USD-INR Movement

By examining a long-term examination of the USD–INR movement alongside the Dollar Index clearly shows that episodes of rupee depreciation are overwhelmingly driven by the global dollar strength, rather than the domestic macroeconomic fragility.

For instance, during May 2014–Jan 2018, the Dollar Index surged by 13.6% and the rupee naturally saw an 8.3% net depreciation.

A similar pattern appeared in Mar 2021–Sep 2024, pushing the Dollar Index up by 9.8% and causing a corresponding 14.7% net depreciation in the Rupee.

Looking at the REER data of a 40-currency basket with base 2015-16, the index was above 100 until May 2025, but the onset of the trade war has pulled it below the 100 level and reached the lowest level of 97.40 in September 2025, which is a 7-year low since November 2018.

Undervaluation Of INR

Further, the latest RBI real effective exchange rate (REER) data, as of October 2025, indicates that the INR is undervalued for a third straight month, which reflects softer currency and lower inflation. The NEER has also weakened dramatically, to 84.6 in October 2025, from 92.1 in June 2024, indicating depreciation in the rupee. Going forward, it is expected that REER will mark above 100 with the announcement of trade deals.

As per the latest available data, the RBI has intervened around US$18 billion in the forex market during June-September, and estimated (by looking at the forward market data) another ~US$10 billion in October 2025.

So, the total amount stands at around ~US$30 billion till October 2025, while the forex reserves declined by US$15 billion during the same period. This indicates that the RBI has chosen a restrained approach, avoiding aggressive interventions as part of its policy to not protect any level.

RBI's Measures

RBI’s clear differentiation of its distinct, though at times overlapping, measures, which are aimed at durable and transient liquidity management, should come as a confidence-building mechanism for broader markets.

Summing up, it is thus prudent not to “guesstimate” and conclude that the decline in INR is always bad for the economy.

(The writer is a Member of the 16th Finance Commission and Group Chief Economic Advisor, State Bank of India. Views are personal.)