Indian rupee's 6% slump makes it worst-performing Asian currency: Key factors behind the fall explained

The Indian rupee slumped past the 91 mark against the US dollar earlier this week, marking the first time the domestic unit has breached this mark. The all-time low for the Indian rupee stands at 91.14, hit in Tuesday's trade. The sharp fall in rupee from 90 to 91 happened in a span of just two weeks.

However, in Wednesday's trade, the rupee witnessed its best single-day gain in two months and snapped a five-day losing run. As of last close, the rupee was quoted at 90.38, up 55 paise over its last close, amid intervention by the RBI. During the day, it rose as much as 97 paise to above the 90 per US dollar mark.

Despite the bounce in Indian rupee, it remains over 6% down against the US dollar this year and is the worst-performing major Asian currency in 2025. According to analysts, some of the top factors behind its fall are as follows.

India-US trade deal: The major reason remains a lack of progress in the US–India trade negotiations. Finalisation of the trade deal is expected to ease the pressure on the Indian rupee, as per experts. India and the US have been engaged in negotiations through much of 2025, although India's Chief Economic Advisor said in a Bloomberg interview last week that he expects an agreement to be reached by March 2026.

FPI selloff: A massive selling by foreign portfolio investors (FPIs) is another factor pressurising the Indian rupee. FPI outflows have swelled to ₹18,667 crore in December, taking the YTD selling to ₹162,342 crore. A large part of the 2025 selling reflects rotation rather than an outright exit, with FPIs reallocating toward markets offering either deeper value or more immediate cyclical upside, as per Ross Maxwell, Global Strategy Operations Lead, VT Markets.

Lack of RBI intervention: RBI has largely refrained from supporting the Indian rupee in its recent slide to record lows. The RBI has maintained its stance that it remains focused on curbing volatility rather than defending a specific level. Wednesday's aggressive intervention has eased pressure on the rupee for now, though analysts do not expect the currency to gain much further until a US trade accord is finalised.

Widening trade deficit: The Minister of State for Finance, Pankaj Chaudhary, has attributed rupee weakness to an increase in trade deficit apart from the developments around the India-US trade deal. India's trade deficit narrowed to a five-month low of $24.53 billion in November after October's slump.

Analysts remain divided on the rupee outlook. Axis Bank chief economist Neelkanth Mishra said the rupee is likely to depreciate further, as per a PTI report. He projected that the currency would depreciate more to ₹92-94 per dollar by June 2027. Meanwhile, N. ArunaGiri, CEO, TrustLine Holdings, said that if conditions improve through a reversal in FPI flows, progress on trade negotiations, or selective RBI intervention, the rupee could retrace by 2–3%