The Indian Rupee fell past 90 per US dollar for the first time on Wednesday, as traders bet that the lack of a India-US trade deal and exodus of foreign monies from the stock market will keep Asia’s worst performing currency under pressure without central bank intervention.
The rupee-dollar exchange rate fell to a record low of 90.28, down 0.4% from the previous close. The rupee has fallen 5.3% so far this year, putting it on track for its steepest annual decline since 2022.
The slide underscores divergence in India’s macroeconomic data—while GDP growth rate is at a six-quarter high, the trade deficit is wider still due to impact of 50% US tariffs on exports.
Rupee and India-US trade deal
“Every day that we do not have a trade deal, the FX demand from trade deficit and outflows keeps pushing USD-INR higher, while FX supply is relatively thin and inconsistent,” said Joey Chew, head of Asia FX research at HSBC Singapore told Reuters. “Foreign investors are also losing patience. We had one month of net inflows in October, but without any more trade deal headlines since then, net flows have become flat.”
Overseas investors have pulled about $17 billion from Indian equities this year, while net foreign direct investment and overseas commercial borrowings have been soft, worsening the strain on the rupee.
India’s trade deficit hit a record $40-plus billion in October. HDFC Bank expects India’s current account deficit to rise close to 1.1% of GDP this financial year and the balance of payments to stay in a deficit.
“The weak macro picture in India makes weak currency performance inevitable, there has been a slide in so many data points recently—rising trade deficits, weakening nominal GDP growth, weak FDI and foreigner selling down domestic equities, etc.,” said Sat Duhra, portfolio manager at Janus Henderson Investors in Singapore, told Reuters.
Investors and bankers say any relief on the rupee depends on a breakthrough in India-US trade talks, which have been stalled for months.
“The longer it takes for a trade deal to come, the longer the pressure on the rupee is likely to persist,” said Sakshi Gupta, principal economist at HDFC Bank, told Reuters. She expects the rupee to hover in the 92 to 93 range next quarter.
RBI and USD-INR
The impact of the macroeconomic headwinds has been compounded by signs of speculative activity, as seen in the rise in rupee/dollar non-deliverable forward points and a further build-up in importer-driven dollar demand.
The one-month rupee/dollar non-deliverable forward points jumped to seven-month high of 23.25 paisa on Wednesday, a near 50% surge in three days.
“The way the points have moved tells you speculators are simply trading what the price action is signalling—the upside momentum (on dollar/rupee) is picking up,” a Singapore-based banker said.
The relatively light-touch intervention—and the central bank’s reluctance to force the dollar/rupee back down—is making speculators more confident, said the banker, who did not want to be named.
