Rupee breaks 91: What is going wrong for the rupee and why it is falling

Today, the rupee has slipped to a fresh all-time low, crossing the 91 mark, making it one of the weakest major currencies globally this year and the lowest in Asia in 2025 so far. According to an analyst, the pressure on the currency is being driven by three key factors: sentiment, capital flows, and the global macro backdrop.

Trade deal uncertainty is hurting market confidence

Uncertainty around the pending India–US trade deal, along with wider global trade-war tensions, has weakened investor confidence.

Further, global investors have turned cautious, and speculative selling has increased across emerging markets. The rupee has come under pressure alongside equities, credit, crypto and some commodities. This negative mood has put pressure on the rupee.

"On sentiment, uncertainty around the pending India–US trade deal and the broader trade-war environment is weighing on markets. From a flows perspective, foreign portfolio investors have pulled out close to USD 2.7 billion in the first two weeks of December alone, already among the largest monthly outflows this year, with the month still unfinished," said Anindya Banerjee, Head Currency and Commodity Research, Kotak Securities.

Rising global interest rates are driving risk aversion

Higher US bond yields and expectations of a rate hike by the Bank of Japan have led investors to unwind the yen carry trade. This has triggered a broader shift away from riskier assets, including emerging-market currencies like the rupee.

Banerjee said, "Globally, rising US bond yields and expectations of a Bank of Japan rate hike have triggered an unwinding of the yen carry trade. This has led to risk aversion across equities, credit, crypto, and some commodities, adding speculative pressure on emerging-market currencies, including the rupee."

Echoing similar views, Sachin Sawrikar, Founder and Managing Partner, Artha Bharat, said, "A stronger US dollar, supported by higher-for-longer US rates and safe-haven flows, has weighed on emerging market currencies broadly. Several peers have seen comparable or larger declines, with the Japanese yen weakening over 10% year-on-year and currencies such as the Korean won, Indonesian rupiah, Brazilian real, and Mexican peso posting mid to high single-digit depreciations. In comparison, the rupee’s movement has been relatively orderly"

Limited RBI intervention is allowing the rupee to weaken

The Reserve Bank of India has intervened only modestly so far. With strong growth and controlled inflation, policymakers may be comfortable with some depreciation, especially as a weaker rupee can help exports in a global trade-war environment.

"In the near term, the 90 level remains a key support, while 91.25 is an important resistance. A sustained break higher could open the door towards 92. The RBI’s relatively limited intervention so far appears deliberate. With India’s growth strong and inflation contained, policymakers may be comfortable allowing some currency depreciation, especially in a global trade-war environment where a weaker currency can support export competitiveness," said Banerjee.

However, it is worth noting that a weaker rupee also improves the competitiveness of Indian exporters, particularly in IT services, pharmaceuticals, and manufacturing, supporting export earnings.

"Looking ahead to 2026, we expect the rupee to stabilise as global monetary conditions ease and capital flows normalise," said Sawrikar.