The rupee surged to an intraday high of 89.75 per dollar from near 91 before easing to around 90.28, even as foreign outflows, trade-deal uncertainty and policy signals kept investors guessing about the road ahead.
Bankers said the central bank sold dollars heavily in the spot and non-deliverable forward (NDF) markets, mirroring its interventions in October and November that disrupted persistent depreciation. The move came after the rupee underperformed Asian peers, weakening 1.8% in December through Tuesday while most regional currencies were flat or slightly higher.
Wednesday’s trade was volatile, with support from easing crude prices offset by uncertainty over the India-U.S. trade deal and continued foreign selling.
Flows, not fundamentals, in the driver’s seat
At a practical level, foreign portfolio investor (FPI) flows are calling the shots, Bank of Baroda said, noting that FPIs were net sellers in nine of the first 11 trading days of December. “If they are withdrawing, then one must wait for a trigger for a turnaround, which can be the deal,” the bank said, adding that expectations of a possible agreement by March 2026 could keep the rupee volatile in the interim. The bank flagged that the dollar index remains below 100, typically supportive for emerging-market currencies, making the rupee’s weakness stand out.
Bank of Baroda also pointed to relative equity performance as a factor diverting flows. While major global indices have delivered strong gains over the past year, India’s benchmark has lagged, feeding perceptions among some investors that valuations need earnings to catch up. Trade-balance fears, it said, are less convincing given better November data, while the RBI’s reserve trajectory suggests dollars were built earlier and released through sales as policy priorities evolved.
Balance of payments strain
Mirae Asset Mutual Fund framed the recent slide as a balance-of-payments story amplified by policy and external shocks. It said the USD/INR breach of 90 followed the convergence of weak FPI and FDI flows, a shift in FX intervention strategy and trade-deal uncertainty. The balance of payments deficit in FYTD26 through November is tracking at minus $22 billion, the largest historically, driven by a sharp slowdown in capital inflows.
While the current account deficit remains low at about 0.8% of GDP in the first half of FY26, Mirae warned that comfort is thinning as gold imports rise and tariff tensions begin to bite. Exports to the U.S. on tariff-affected items are down sharply from September, it said, even as strong services and remittance inflows cushion the blow. On policy, Mirae noted that RBI dollar sales in FYTD26 are far lower than last year’s pace, reflecting a more measured approach even as reserves remain ample.
What investors should do now?
Market participants urged investors to look past the noise. “As the rupee slides to 91.075 per dollar, Indian investors should focus on disciplined investing rather than reacting out of fear amid currency weakness and volatile stock markets,” said Ross Maxwell, Global Strategy Operations Lead at VT Markets.
Maxwell advised prioritising companies with strong balance sheets and using systematic investing to navigate volatility, while keeping gold as a hedge. Export-oriented sectors such as IT services, pharmaceuticals and select engineering exporters typically see margin support during depreciation, he said, while caution is warranted in import-dependent businesses.
Sachin Sawrikar, Founder and Managing Partner at Artha Bharat, said the rupee’s move to record lows is “primarily driven by global factors rather than India-specific concerns,” noting that several peers have posted comparable or larger declines.
“In comparison, the rupee’s movement has been relatively orderly,” Sawrikar said, adding that a weaker currency improves exporter competitiveness and that FDI should remain largely unaffected by near-term volatility. Looking ahead, he expects the rupee to stabilise in 2026 as global monetary conditions ease and capital flows normalise.
For Dalal Street, Wednesday’s intervention delivered a reminder: the RBI will act to curb disorderly moves, but it is not defending a level. With FPIs still selling- FIIs offloaded nearly Rs 2,382 crore of equities on December 16 – the rupee’s path will hinge on flows, policy signals and progress on trade talks. Volatility, investors are being told, is not a cue to retreat, but a test of discipline.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)