Rupee at lifetime low despite GDP boost. Is a steeper decline on the cards?

The Indian Rupee extended its decline in November 2025, falling by 0.8% during the month to close at a record low of 89.46 against the U.S. dollar. The depreciation continued into early December, with the rupee slipping further to 89.73/$—surpassing its previous record low of 89.49/$ registered just two weeks earlier.

The move came despite robust domestic economic data, most notably a higher-than-expected GDP growth of 8.2% in the September quarter, well above the 7.3% consensus estimate in a Reuters poll.

This contrast between strong economic performance and weak currency trajectory has drawn attention from market analysts.

Aditi Gupta, Economist at Bank of Baroda, noted in her recent update that “a surprisingly good GDP print did not quite help lift sentiments,” highlighting that external concerns, particularly around trade and capital flows, outweighed domestic fundamentals.

The rupee’s performance is particularly notable in the context of a broader global dollar weakening, making the local currency’s relative underperformance even more stark.

INR movement in November

According to Gupta, the rupee’s movement in November was marked by two clearly defined phases. In the first phase, between 1–20 November, the INR traded in a narrow band of 88.57–88.78/$, showing relative stability.

However, this period of calm was followed by a sharp one-day decline of 0.8%, with the rupee falling to 89.41/$, and subsequently breaching the 89.46/$ mark by 28 November.

The breach of the 89/$ level was described by Gupta as “a crucial point in the defence of the rupee.”

Volatility, which was largely muted in the early part of the month, spiked towards the end. The report mentioned that “annualised daily volatility in INR was considerably low at 1.4% in the first part of the month but increased to 4.9% in the second half.”

Reasons behind the Rupee’s decline

Gupta attributed the sharp depreciation in the rupee to a combination of structural and sentiment-driven factors. These include:

• Strong demand from importers is leading to increased dollar purchases.
• Low foreign inflows, with particular mention of “lacklustre” FPI interest.
• Elevated trade deficit, which hit a record high in October 2025 due to a surge in imports.
• Uncertainty over the US-India trade deal which has limited optimism in the market.
• Global risk sentiment, with the absence of progress on the trade front, is adding to external pressure.
• Muted equity segment interest from foreign investors.
• Delay in India’s inclusion in the Bloomberg Global Aggregate Index, which led to only selective inflows.

What’s next for INR?

Looking forward, the Bank of Baroda report remains cautious in its outlook.

Gupta stated, “We expect the currency to trade with a depreciating bias in the near-term, with news about the US-India trade deal being a major catalyst for any sharp movement in either way.”

On the global front, a potential Fed rate cut has been “fully priced in by the markets,” and the dollar is likely to remain range-bound barring any surprises from the Fed.

Domestically, Gupta noted that “we do not expect the RBI to cut rates this meeting,” suggesting that interest rate differentials are unlikely to shift in a way that would offer currency support. Overall, she concluded, “we expect INR to trade in the range of 89–90/$ this month.”

Global currency landscape: INR lags peers

Despite the weakening of the U.S. dollar in November—reflected in a 0.3% dip in the DXY—performance across global currencies was mixed. Gupta highlighted that “while a majority of currencies (12 out of 18) in the given basket of currencies appreciated, a few depreciated despite the relief from a weaker dollar.”

Also read: Rupee hits record low of 89.73 vs USD amid weak flows, trade deal woes

Among the best-performing currencies were the Mexican Peso (MXN), South African Rand (ZAR), and Brazilian Real (BRL), which saw smart gains. In contrast, the Indian Rupee (INR) and Taiwanese Dollar (TWD) were among those that could not benefit. Advanced economy currencies like the British Pound (GBP) and Euro (EUR) appreciated by 0.6% and 0.5%, respectively, while the Japanese Yen (JPY) and Korean Won (KRW) also posted gains.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)