Rupee Plummets to Record Low Below 90! Is a Massive Comeback Coming? Experts Reveal Timeline!

Rupee Hits Record Low Below 90 Against Dollar

The Indian Rupee has experienced a sharp decline, reaching an all-time low below 90 units per US Dollar. This depreciation is attributed by analysts to a confluence of short-term negative factors impacting the currency simultaneously.

Temporary Headwinds Driving Rupee's Fall

• Several temporary factors have converged to put pressure on the Rupee, including delays in anticipated trade deals between India and the United States.
• Continued selling by Foreign Portfolio Investors (FPIs) in Indian markets has also contributed to the outflow of foreign currency.
• Global geopolitical uncertainties and nervousness surrounding international events have further dampened investor sentiment.
• India's current account deficit widened to 1.3% of GDP in Q3 CY25, indicating higher import payments relative to export earnings.
• Rising yields on Japanese Government Bonds (JGBs) have negatively affected Asian currencies, with the Rupee showing a notable correlation.

Underlying Strength Supports Indian Currency

• Despite the recent volatility, Elara Capital emphasizes that India's external financial position remains robust.
• Excluding gold imports, India's current account registered a surplus of $7.8 billion in Q2 FY26.
• The nation's foreign exchange reserves are substantial, standing at $688.1 billion, providing ample cover for imports and short-term external debt.

Expected Recovery and Investor Return

• Historical data suggests that equity flows often resume one to two quarters after the Real Effective Exchange Rate (REER) bottoms out.
• The Rupee is currently trading at its most undervalued level against a basket of 40 countries since October 2018, based on the REER index.
• Elara Capital forecasts a potential repeat of this pattern as India's domestic growth accelerates through mid-2026, attracting renewed foreign investment.
• A potentially more dovish outlook from the US Federal Reserve, possibly influenced by a new Fed Chair, could further support the Rupee by limiting US Dollar strength.

Role of the Reserve Bank of India

• Analysts anticipate the Reserve Bank of India (RBI) will adopt a more active stance in managing the currency as liquidity conditions improve.
• The central bank has already injected liquidity through Open Market Operations (OMOs), creating financial room for currency interventions if deemed necessary to stabilize the Rupee.

Impact

• The depreciation of the Rupee can lead to higher costs for imported goods, potentially contributing to inflation in India.
• It also makes Indian exports cheaper in dollar terms, potentially boosting competitiveness for some sectors.
• Currency volatility can impact investor sentiment, affecting foreign capital inflows into Indian equity and debt markets.
• A stable and appreciating Rupee is generally viewed positively for economic stability and consumer purchasing power.
• Impact Rating: 8/10

Difficult Terms Explained

• Foreign Portfolio Investors (FPIs): These are investors who invest in the securities of a country outside of their home country, typically stocks and bonds, without taking direct control of the asset.
• Real Effective Exchange Rate (REER): A measure of a country's currency value relative to a weighted average of trade partners' currencies, adjusted for inflation. A lower REER suggests a currency is undervalued.
• Japanese Government Bonds (JGBs): Debt securities issued by the Japanese government, considered a safe investment. Rising yields can attract capital away from other markets.
• Open Market Operations (OMOs): A monetary policy tool used by central banks to buy or sell government securities in the open market to influence the money supply and interest rates.
• Current Account Deficit: Occurs when a country's total imports of goods, services, and transfers are greater than its total exports.