Rupee PLUMMETS to Historic ₹90 vs. USD! Is India's Economy Prepared for This Shock?

The Indian Rupee has touched an all-time low, crossing the critical ₹90 mark against the US Dollar. This significant movement is occurring amidst an ongoing global tariff war and persistent outflows from the Indian equity market, coupled with uncertainty surrounding the India-US trade deal.

A More Orderly Depreciation

Despite reaching this historic low, analysts note that the rupee's current depreciation trend is far more gradual and orderly compared to previous periods of severe economic stress. This includes the 1991 India economic crisis, the Global Financial Crisis, the twin balance sheet problem, the COVID-19 shock, and the Russia-Ukraine war. In those earlier phases, the rupee experienced abrupt depreciations driven by massive capital outflows, collapsing risk appetite, and severe stress on India’s macroeconomic fundamentals.

Key Data and Performance

According to Bloomberg data, between December 31, 2024, and December 3, 2025, the Indian Rupee depreciated by 5.06 percent. During the same period, it emerged as the worst-performing currency among its Asian peers, with the Indonesian Rupiah depreciating by 3.13 percent, the Philippine Peso by 1.81 percent, and the Hong Kong Dollar by 0.21 percent.

Lessons from Past Crises

• 1991 India Economic Crisis: The rupee depreciated by 29.74 percent in 1991, from 17 to 25.79 against the USD, triggered by a balance-of-payments crunch and critically low foreign exchange reserves.
• Global Financial Crisis (2008-09): The currency saw a depreciation of 21.92 percent, moving from 40.12 to 50.17 against the USD, as global investors sought dollar safety.
• Twin Balance Sheet Problem: The rupee depreciated annually in an orderly manner, moving from 50.88 in FY13 to 65.18 against the USD in FY18.
• COVID-19 Pandemic (2020): The rupee weakened rapidly from around 71.38 to a lifetime low of about 76.9 against the greenback in April 2020 due to massive foreign investor withdrawals and global market panic.
• Russia-Ukraine War: The currency depreciated from 74.88 to 82.95 against the USD by mid-2023, driven by rising global commodity prices.

Current Drivers and Future Prospects

The recent pressure on the rupee is attributed to the imposition of tariffs on Indian goods, increasing the demand for dollars. Heavy outflows from the Indian equity market have further exacerbated this. Currency experts suggest that a potential trade deal between India and the US could reverse this depreciating trend.

Impact on the Indian Economy

• A weaker rupee makes imports more expensive, potentially leading to higher inflation.
• It can boost India's exports by making them cheaper for foreign buyers.
• Foreign investment inflows might become more cautious due to currency risk.
• The Reserve Bank of India (RBI) may need to intervene in the forex market to manage volatility and inflation.

Impact

• This news directly impacts the Indian stock market by influencing inflation, import/export costs, and foreign investor sentiment.
• It affects Indian consumers through potential price rises for imported goods.
• Indian businesses involved in trade, particularly importers, will face increased costs, while exporters may see improved competitiveness.
• Impact Rating: 8/10

Difficult Terms Explained

• Tariff War: A situation where countries impose taxes (tariffs) on each other's imported goods, leading to retaliatory measures and impacting international trade.
• Capital Outflows: The movement of financial assets and money out of a country, often due to investor concerns about economic stability or better returns elsewhere.
• Macro Fundamentals: The basic economic conditions of a country, including factors like inflation, interest rates, economic growth, and employment, which influence investment decisions.
• Balance-of-Payments Crunch: A situation where a country's payments to other countries exceed its receipts, leading to a shortage of foreign currency.
• Sovereign Default: A government's failure to repay its debts, leading to a severe financial crisis.
• Exchange Rate Regime: The system a country uses to manage its currency's value against other currencies.
• Liquidity Support: Measures taken by central banks to ensure there is enough money available in the financial system for banks and businesses to operate smoothly.
• Non-Performing Assets (NPAs): Loans given by banks that have not generated income for a specified period, indicating potential losses for the bank.
• Overleveraged: A company or individual that has taken on too much debt relative to its assets or income.
• Forex Reserves: Holdings of foreign currency and gold by a country's central bank, used to manage its currency's exchange rate and settle international debts.
• Monetary Policy: Actions undertaken by a central bank to manipulate the money supply and credit conditions to stimulate or restrain economic activity.
• Repo Rate: The rate at which the central bank lends money to commercial banks, often used as a tool to control inflation.
• CRR (Cash Reserve Ratio): The portion of a bank's total deposits that it must keep with the central bank in cash.