The Indian rupee plunged to a historic low for the seventh consecutive session on Thursday, continuing its slide in the current quarter due to a growing trade deficit and sluggish capital inflows.
The currency hit an all-time low of 85.2525 against the U.S. dollar, reflecting a broader decline in Asian currencies. Since October, the rupee has depreciated by 1.74%, marking its steepest quarterly loss since the third quarter of 2022.
Mounting Pressures on the Rupee
The rupee’s depreciation stems from India’s evolving balance of payments (BoP) scenario and the strengthening of the U.S. dollar following Donald Trump’s U.S. presidential election victory.
Between April and November, India’s trade deficit widened by 18.4% year-on-year, according to estimates by IDFC First Bank. Simultaneously, equity and debt markets saw net outflows of $10.3 billion this quarter, a sharp reversal from $20 billion in inflows during the previous quarter, as reported by NSDL data.
This combination of factors has led to a BoP deficit for the current quarter. Economists project the fiscal year’s BoP deficit to range between $20 billion and $30 billion, a stark contrast to the surplus of over $60 billion recorded in the previous fiscal year.
IDFC First Bank anticipates continued downward pressure on the rupee due to these outflows and a robust dollar, forecasting the currency to weaken further to 86 by September 2025.
Dollar Strength Exacerbates Challenges
The U.S. dollar’s rally, fueled by expectations of growth and inflation under Trump’s policy agenda, has compounded the rupee’s challenges. The dollar index remains near its highest levels this year, driven by optimism over pro-growth policies from the U.S. President-elect.
These inflationary expectations have also prompted Federal Reserve officials to project fewer interest rate cuts next year, further solidifying the dollar’s appeal.
The combination of a widening trade deficit, BoP outflows, and a surging dollar underscores the challenges facing the Indian rupee, with continued volatility expected in the near term.
