The Currency Plunge: Why the Indian Rupee is in Free Fall

The Indian rupee has been under intense pressure, sliding to record lows against the US dollar in recent months. This dramatic fall is driven by a mix of domestic economic challenges, global shifts in investor sentiment, and persistent trade issues weighing heavily on the country’s currency.

Economic growth in India has stumbled, with lower GDP expansion and sluggish industrial activity undermining confidence in the rupee. The widening trade deficit—largely due to soaring imports of crude oil and technology, combined with sluggish exports—has ramped up demand for dollars, weakening the rupee further. Inflation is another key factor; as prices rise within India, the rupee’s purchasing power drops, prompting both domestic and foreign investors to look for safer opportunities outside the country.

The US dollar’s dominance has only grown stronger, boosted by solid US economic performance and a hawkish stance from the Federal Reserve. Higher US bond yields, reflecting tight monetary policy, make dollar assets more attractive. Foreign portfolio investors have responded by withdrawing billions from Indian equities, pushing the rupee downward and raising trading volumes as currency traders hedge their bets.

Recent months have seen the US impose steep tariffs on Indian exports, a move which hit export orders and fuelled uncertainty around a much-anticipated bilateral trade deal. With no clear communication or resolution, risk sentiment turned sharply negative in both local and global markets. The Reserve Bank of India’s cautious approach—pulling back on interventions as foreign reserves dwindle—exacerbated the rupee’s slide. Market experts say the rupee could continue trading weak, especially if trade talks remain stalled.

A weaker rupee has wide-ranging consequences—imported goods like oil, fertilisers, and electronics become more expensive, raising prices for consumers; inflation management becomes tough as rising costs spill over into daily life; and, outflows from financial markets further reduce capital available for investment and growth.

With global volatility and domestic weaknesses prevailing, the rupee’s woes may not end soon. Its future will depend on successful trade negotiations, inflation controls, and efforts to strengthen key sectors to restore investor confidence and stabilise the currency.