Topic 3: RUPEE: STUMBLING OPENLY

The Indian rupee weakened moderately against the US dollar in November 2025, declining by approximately 0.8–1.0% over the month. It opened near ₹88.77 on November 1 and initially traded in a tight and relatively stable range of ₹88.46 to ₹88.89 through the first half of the month, with an average rate around ₹88.88. However, selling pressure increased toward the end of November, and the rupee slipped to lows of around ₹89.36–₹89.71 by month-end, setting new record levels before declining even further in early December. One of the primary drivers of depreciation was sustained Foreign Portfolio Investor (FPI) equity outflows. During November, FPIs sold Indian equities worth between ₹12,500 and ₹17,500 crore as they reallocated capital toward stronger, AI-driven rallies in US markets and adopted a more risk-averse stance globally. Since August, total equity outflows had reached nearly $16.5 billion, increasing dollar demand and putting sustained pressure on the rupee.

The pressure on the currency was further aggravated by adverse trade developments. The imposition of 50% tariffs on certain Indian exports by the United States from late August significantly affected export inflows. As the US is India’s largest export market, the trade deficit widened sharply to a record $41.7 billion in October, leading to reduced dollar earnings for Indian exporters. At the same time, importer demand for dollars rose sharply, particularly for crude oil, gold, and electronics, deepening the supply-demand mismatch in the foreign exchange market.

Global factors played a crucial role in the rupee’s underperformance. A stronger US dollar, US bond yields hovering near 4.2%, fading expectations of Federal Reserve rate cuts following strong US jobs data, and ongoing geopolitical tensions boosted safe-haven demand for the dollar. Rising Japanese bond yields and volatility in other Asian currencies also exerted regional pressure on the rupee, making it one of the weakest-performing Asian currencies during the month. As a result, annualised daily volatility increased to around 4.9% in the latter half of November, reflecting heightened uncertainty. Despite these weaknesses, certain domestic factors limited a steeper fall. The Reserve Bank of India maintained an accommodative monetary policy stance after consumer inflation eased sharply to just 0.3%. This provided some support to domestic sentiment and prevented panic-driven selling. In addition, India’s strong Q2 GDP growth of 8.2% reinforced confidence in the country’s longer-term fundamentals, helping to absorb some external shocks. RBI intervention in the currency market appeared limited once the rupee broke the 88.80 level, but the central bank’s signals and liquidity management helped slow the pace of depreciation. Modest FPI inflows into Indian debt, amounting to around ₹5,760 crore, also provided partial support. There was some temporary relief from optimism around potential US–India trade negotiations, which helped to briefly stabilise the exchange rate below ₹89 earlier in the month. However, these supportive factors were overshadowed by persistent dollar strength, heavy importer demand, a widening current account deficit (which reached 1.3% of GDP, the highest in 2025), and continued global uncertainty. By the end of November, the rupee had firmly crossed the ₹89 mark, setting the stage for the sharper declines witnessed in early December.

In summary, November 2025 marked by modest but meaningful rupee depreciation, driven by strong external headwinds and capital outflows, partly offset by supportive domestic fundamentals and cautious central bank measures.