The Indian rupee suffered its steepest single-day fall in over three months on Friday, plunging to a fresh lifetime low of 89.61 against the US dollar. The sell-off was driven by a triple threat: heavy foreign portfolio outflows, lingering uncertainty over the US-India trade deal, and a perceived scaling back of the RBI’s defense strategy.
The currency closed the session 93 paise weaker, decisively breaching the 89-per-dollar mark for the very first time. This slide surpasses its previous all-time low of 88.8, setting a worrying precedent for the coming weeks.
📉 Three Key Reasons the Rupee Lifetime Low Was Breached
The rupee’s sudden collapse, despite India’s generally resilient economic fundamentals, is attributed to three primary drivers:
1. The FPI Exodus: Foreign Outflows Intensify
Foreign investors have turned aggressively risk-averse toward Indian assets, withdrawing a staggering $16.5 billion from Indian equities so far this year. This makes India one of the worst-hit emerging markets globally in terms of portfolio outflows, directly exacerbating the pressure on the currency.
2. US Trade Uncertainty Widens Deficit
Since late August, when steep US tariffs on Indian exports took effect, the currency has been under constant strain. The tariffs have weighed on bilateral trade and widened India’s merchandise trade deficit to a record high last month. Exports to the US have fallen 9 per cent year-on-year, underscoring the strain.
3. RBI’s Defense Scaled Back
Traders reported that the Reserve Bank of India (RBI), which had actively defended the crucial 88.80 level in recent sessions, appeared to have scaled back its defense efforts. This shift in perception triggered aggressive market action.
Anindya Banerjee, Head of Research at Kotak Securities, noted the market impact:
“USD/INR broke decisively above 89, a level many importers and dealers believed the RBI would defend. Once this perception failed, aggressive short-covering kicked in across onshore and offshore markets, triggering stops and amplifying the upside move.”
🎯 The Next Target: Could the Rupee Hit 90?
Market observers now widely anticipate that the rupee could test the psychologically significant 90 level if the US-India trade negotiations remain unresolved.
The Rupee Lifetime Low marks a significant technical break, leading traders to watch a broad spot range of 88.7–90.3.
RBI Governor Sanjay Malhotra recently commented that the central bank has not set any target for the rupee’s exchange rate, stressing that market dynamics drive currency movements. Nevertheless, the rupee is currently one of the weakest performers among major Asian currencies this year, down 4.5 per cent year-to-date.
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