Indian Rupee Hits Record Low Despite Booming Economy

The Indian rupee fell to an all-time low on Thursday, pressured by weak foreign capital flows and a rush to hedge against further declines. The currency’s weakness persists even as India’s domestic economy shows robust growth.

The rupee touched 91.9850, breaking its previous record low of 91.9650 set just last week. So far this year, the currency has depreciated by 2%. This downturn comes against the backdrop of an 8.2% GDP growth rate for the quarter ending September 30.

Traders reported that the Reserve Bank of India (RBI) likely intervened in the market before the spot session opened. According to a trader at a foreign bank, the central bank’s action was probably aimed at slowing the rupee's slide as it approached the psychologically significant 92 level. The currency broke past the 91 mark only six trading sessions ago.

The RBI has consistently stated that it does not target a specific exchange rate but intervenes only to manage excessive volatility.

Unpacking the Rupee's Persistent Weakness

Despite being the world's fastest-growing major economy and recently signing a free trade agreement with the European Union, the rupee remains under significant pressure. Several key factors are contributing to this trend:

• Steep U.S. Tariffs: Tariffs imposed by U.S. President Donald Trump on Indian merchandise exports have been a major drag. Since their implementation, the rupee has fallen nearly 5%.

• Foreign Portfolio Outflows: Significant outflows of foreign investment have added to the currency's weakness.

• Rising Bullion Imports: An increase in gold and silver imports has widened the trade deficit.

• Corporate Hedging: Widespread corporate anxiety has led to increased hedging activity, further weighing on the rupee.

Figure 1: The USD/INR exchange rate trend from January 2025 to January 2026 illustrates the rupee's consistent depreciation, accelerated by U.S. tariffs and a record trade deficit in November.

The rupee has also lost ground against other major currencies, falling 7.5% against both the euro and the Chinese yuan since the U.S. tariffs took effect. According to central bank data, the rupee's trade-weighted real effective exchange rate was 95.3 in December, its lowest level in a decade.

Figure 2: A comparison of Asian currency performance in January shows the Indian Rupee was the worst performer, falling 2.3% while peers like the Malaysian Ringgit appreciated.

Market Dynamics and Future Outlook

A noticeable shift in corporate behavior has intensified the pressure. Importers and other firms are increasingly buying protection against a weaker rupee. At the same time, exporters have slowed their dollar sales in the forward market, which has reduced supply and compounded the currency's decline.

Analysts at Goldman Sachs noted that the ongoing U.S. tariffs remain a significant obstacle for India's external balances. "While we anticipate current elevated US tariffs on Indian exports to eventually be lowered, the delay in the meantime remains a drag," the firm stated. Goldman Sachs forecasts the rupee will weaken further to 94 per dollar over the next 12 months.

The note also suggested the RBI appears comfortable with a flexible exchange rate. "RBI is more comfortable allowing flexibility in the INR and will likely replenish FX reserves on USD/INR dips, which should limit INR appreciation."