Rupee at 90: a market meltdown or a calculated policy pivot by RBI?, Pg14

Key Highlights:

• On December 3, 2025, the rupee fell past ₹90 per dollar, a level considered psychologically significant.
• The rupee's decline is attributed to market factors like falling exports, surging gold and silver imports, and Foreign Portfolio Investors (FPIs) pulling out of Indian equities.
• The RBI has shifted its strategy from actively defending the rupee to allowing it to find its own level with less intervention.
• Exports to the U.S. fell by over 12% in September and 9% in October 2025, while gold imports surged by roughly 200% in October.
• FPIs have withdrawn $17 billion from Indian equities in 2025, marking the highest calendar-year outflow in two decades.

Detailed Insights:

• The U.S. tariffs have reduced demand for Indian goods, impacting exports, but overall exports for April-October 2025 rose marginally by 0.5%, indicating resilience in finding alternative markets.
• The surge in gold and silver imports is driven by festive season demand and a "flight to safety" by domestic investors worried about alternative assets, creating a dollar drain.
• The RBI's reduced intervention in the market signals a shift from defending a specific rupee level to smoothing its decline, aiming for a weaker rupee to make Indian goods cheaper abroad.
• Economists are divided on the effectiveness of a weaker rupee in offsetting tariff pain, with concerns that domestic price hikes may negate the benefits of nominal depreciation.
• The RBI's earlier policy between mid-2022 and late 2024 largely kept the dollar exchange rate unchanged despite negative pressure on the current account and capital account.

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.
• Managed-Float: A monetary system where a currency's exchange rate is allowed to fluctuate within a range, with central bank intervention.