Re crosses 90-mark against dollar on uncertainty in deal with US, FPI outflow, Pg3

Key Highlights:

• The Indian Rupee breached the 90-mark against the US dollar for the first time on Wednesday, reaching an all-time low of 90.19.
• The rupee's fall is attributed to persistent equity selling by Foreign Portfolio Investors (FPIs), uncertainty around the India-US trade deal, and higher importer demand for the US currency.
• The rupee has depreciated by approximately 5.35% in the current calendar year (January 1 to December 3, 2025), compared to 2.88% in 2024 and 0.57% in 2023.
• In October, merchandise exports contracted by 11.8% year-on-year to $34.4 billion, while merchandise imports surged 16.6% year-on-year to a record $76.1 billion.
• FPIs have withdrawn Rs 1.52 lakh crore from domestic equities since January.
• India's foreign exchange reserves have declined by $12.1 billion between end-September and November 21, 2025, settling at $688.1 billion.

Detailed Insights:

• The rupee's depreciation occurred despite supportive macroeconomic factors such as softened crude oil prices, cooled inflation (below 1%), and GDP growth of 8.2% in the September quarter.
• The delay in finalizing a trade deal with the US has created uncertainty, impacting currency stability, export planning, and overall sentiment around bilateral economies.
• A sharp surge in gold imports during the festive season, tripling to $14.7 billion in October, has further strained the rupee.
• The Reserve Bank of India (RBI) appears to be favoring a gradual depreciation of the rupee to maintain export competitiveness, especially considering the 50% tariff imposed by the US.
• A widening trade deficit, driven by a drop in exports to the US and a surge in imports, is adding pressure on the rupee.
• The decline in foreign exchange reserves is primarily due to a fall in foreign currency assets, partially offset by an increase in the value of gold reserves.
• The RBI's restrained intervention in recent weeks has contributed to the speed of the rupee's decline, with traders awaiting signals on the central bank's future actions.

Key Concepts Involved:

• Foreign Portfolio Investors (FPIs): Entities that invest in the financial assets of a country without directly managing them.
• Trade Deficit: The amount by which the cost of a country's imports exceeds the value of its exports.
• Foreign Exchange Reserves: Assets held by a central bank in foreign currencies, used to back liabilities and influence monetary policy.