The rupee plummeted to a historic low against the US dollar on December 3, briefly approaching the crucial 90 threshold before settling slightly below it. The downward move was fueled by sluggish foreign flows, big offshore positioning and uncertainties over a US-India trade deal.
The rupee has been slowly declining for some time, with multiple sessions of losses in a row in the past few days. In recent weeks, it has regularly exceeded prior lifetime lows, leading to a resumption of the off-and-on discussion on capital flows and RBI action.
Even while a single decline might not be sufficient on its own, the rupee's loss of the crucial mark has brought India's policy dilemma to light:how to stop these sporadic shocks from developing into a systemic vulnerability.
Market experts, meanwhile, expect major prospective volatility for the currency in the short term. Some of them have highlighted 90.5 versus the next significant mark for the rupee, while some others even see it hitting 92 levels in case there is no early settlement of India-US trade issues.
Anindya Banerjee of Kotak Securities stated that if the rupee closes above 90, there could be more speculative moves. While the rupee may rise to 91.5 versus the US dollar by the end of 2026, Dhiraj Nim of ANZ told CNBC-TV18 that he also anticipated a 4-5% decline in the US dollar during the same period.On the opposite end of the spectrum, VK Vijayakumar, Chief Investment Strategist at Geojit Investments, stated that there is a perception that the rupee's decline is likely to stop and possibly even reverse if there is some tangible good news regarding the India-US trade agreement.
Factors behind the fall
Three key causes have contributed to the rupee's steady decline.
Outflows from foreign portfolios come first. Overseas investors have been withdrawing cash from Indian equity and debt markets, generating a net negative flow that increases demand for dollars. That pressure shows up most clearly in the spot and non-deliverable forward (NDF) markets.
Second, importer demand and the unwinding NDF positions. The maturity of sizable short positions offshore and importers purchasing dollars to pay for goods have both accelerated the decline.

Third, policy and geopolitical ambiguity. Delays or ambiguity regarding the bilateral trade agreement with the United States have been noted by market participants as a negative for mood and capital inflows, depressing the rupee even as other fundamentals have remained mixed.
The breaching of the 90 barrier came despite RBI's intervention in the forex market to stem the decline. According to forex market observers, measures such as dollar sales and short forward position were utilized by the RBI to avoid the rupee drop past the psychological barrier.
What awaits companies & homes

Import bill: A weaker rupee raises the rupee price of imports. That matters for oil, fertilizer and many other key industrial inputs. Higher import bills lead to a worsening of the trade deficit and, in turn, keep the currency under pressure.

Consumer pricing: If import-intensive expenses are passed down, consumers may notice increased prices for fuel, a number of food products and electronics. The degree of pass-through relies on company profitability, inventory buffers and how long the rupee's low levels endure.

Corporate earnings and markets: Exporters gain competitive advantage from a cheaper currency, while corporations with dollar-denominated debt suffer greater payback expenses. Stock markets often react: sometimes positively because exporters’ profits grow, sometimes negatively because of broader risk aversion and greater costs of imported input.

Cost of hedging: When the rupee declines, hedging costs rise. The market's opinion is reflected in the derivative prices that corporations employ to hedge currency risk, which can increase the cost of forward cover. That boosts the expense of protecting margins.
Concerns about the overall economy
Growth against inflation: When the rupee declines, the RBI must balance the desire to promote growth against the inflationary impact of a weaker rupee. Higher imported inflation can push the central bank to be cautious about easing policy. At the same time, severe tightening to safeguard the euro could hinder domestic recovery.
Forex management: The RBI’s use of foreign exchange reserves to control volatility has been a common practice.

Analysts claim that the central bank prefers to control volatility over permanently fixing the rate, as seen by its sizable forward positions and sporadic dollar sales.
There are also structural concerns involved in addition to the evident effects on the economy. The rupee's collapse past the psychological threshold has brought focus back on a number of long-term, enduring factors -- such as the need for deeper and more stable capital flows, stronger export competitiveness and better diplomacy that can decrease trade-related uncertainties.
Two sides of the coin
If the rupee keeps up the suspense, the govt and the RBI will have to keep a tight check on a variety of items that's either make things or mar them, such as:Foreign portfolio inflows: A persistent increase in investor interest in Indian assets would lower demand for dollars and stabilize the rupee. On the other side, its absence will worsen India's future.
Oil and commodity prices: A rise in global crude prices would add to import strain. Conversely, easing oil can reduce the load on the external account.
Trade developments: Any major progress on large trade deals or a reversal in global risk mood would effect cross-border flows and the exchange rate.
Market participants, for now, will have to keep a careful watch on the RBI's moves.

Trade developments: Any major progress on large trade deals or a reversal in global risk mood would effect cross-border flows and the exchange rate.
Market participants, for now, will have to keep a careful watch on the RBI's moves. The central bank's pronouncements regarding tolerance for volatility, the scale of its interventions and the mix of the tools it uses, will determine the market's attitude and momentum from here on.

Market participants, for now, will have to keep a careful watch on the RBI's moves. The central bank's pronouncements regarding tolerance for volatility, the scale of its interventions and the mix of the tools it uses, will determine the market's attitude and momentum from here on.

What is the last word, then?
There is nothing intrinsically good or bad about a weakened rupee. Gains and losses are redistributed across the economy; the consequences of rupee volatility are felt differently by exporters, importers, consumers, and savers.In certain cases, a declining rupee may be advantageous. By lowering the cost of Indian goods in foreign exchange, it can increase India's exports and enable exporters to compete globally. Low-import sectors like textiles, clothing, handicrafts and similar industries frequently benefit the most: a 4–5 % rupee decrease might translate into an approximately 10% rise in export volume -- provided input prices remain unchanged.
However, there is a catch too: enterprises that rely largely on imported inputs may see these gains neutralized, often very dramatically, since import costs rise when the rupee declines.

A weaker rupee can assist India’s services exports -- such as IT services, software, and business-process outsourcing -- by raising the rupee value of dollars earned abroad, making revenues more profitable in rupee terms.
Because dollar-priced services become comparatively less expensive, this increases global competitiveness and encourages overseas clients to choose Indian service providers.
A weaker rupee also contributes to the development of jobs in India's labor-intensive service industries and foreign exchange profits.
However, as analysts observe, the benefit may be mitigated here too, if service providers depend on imported materials or have foreign-currency charges.For the time being, the rupee at or close to 90 is a warning indication that investor sentiment and outside circumstances continue to be significant factors in determining India's short-term economic trajectory.
The immediate question, more than anything else, seems to be one of stability. Keeping an eye on whether these short-term pressures will subside or continue is crucial. The RBI and the govt will have to respond with balance: reduce disruptive volatility while avoiding steps that undermine the economy.
The major fear today, according to Geojit's Vijaykumar, is -- will the rupee fall much lower, if the RBI is not being seen intervening properly to stabilize it?

Even as India sees confidence improving amid a better-than-expected GDP figure and the economy's fundamentals getting back on track, he added, this concern is causing foreign investors to continue selling.