Rupee Slides to Record Low of 91.08 Amid FII Outflows, FDI Repatriation

To date, the Indian Rupee has never closed below the barrier of 91 against the US Dollar (USD). But yesterday it came to a closing value of 91.0275 after an intraday low of 91.08.

The Rupee fell rapidly in just a span of nine trading sessions from 90 to 91, a drop of approximately 100 paise, primarily due to continued foreign investor outflows and pressure related to Foreign Direct Investment (FDI) repatriation. Alongside, the continued strength of a strong dollar is caused by ongoing negotiations between India and the US regarding tariffs.

But the question remains: what are the implications of this record low level of the Indian Rupee on India's Foreign Exchange reserves, imports, and overall economic Stability?

How Did Rupee Pressure Build Earlier This Year?

According to the data compiled by the NSDL, Indian investors pulled out nearly USD 2.846 billion from the Indian markets in December, which included just under USD 1.918 billion from the equity markets.

As per the FPI (Foreign Portfolio Investors) report for fiscal year 2026 (FY26), FPI selling of equities has now exceeded USD 17 billion, coupled with a reduction in FCNR(B) deposit inflows by 87% in the first half of FY26.

According to analysts, the NDF market is currently having some speculative pressures, especially since the offshore rates are 4-5 paise(p) higher than the onshore rates. On Tuesday, the Reserve Bank of India (RBI) held a 3-year USD-INR buy/sell swap auction, where it received an immense USD 10.35 billion worth of bids. This effectively withdrew USD 5 billion worth of dollar liquidity and strengthened the RBI's intervention capability.

However, the RBI has not made many interventions over the past couple of months and has decided to allow market forces to work through the currency. As a result, it is unlikely that the weak Indian currency will result in any significant profit repatriation by foreign investors in the near term.

RBI Swap and Market Responses

The $5 billion swap increases the Reserve Bank of India's capacity to intervene in the foreign exchange market and takes advantage of an environment in which the liquidity situation is improving because of the open market operations being implemented.

• Abhishek Goenka from IFA Global has stated his view that the pressure on offshore forwards is being transmitted back onto the Indian market.
  
• V Rama Chandra Reddy of Karur Vysya Bank has commented that the selling of debt securities recently has increased the amount of downward pressure on the Rupee.
  
• Dipti Chitale of Mecklai Financial Services has explained that some of the pressure is due to delays in trade negotiations between India and the United States on agriculture and dairy products.
  

Broader Impacts and Outlook

The record low value of the Rupee has repercussions on the importation of goods, receiving monetary remittances from expatriates and it has a negative impact on corporate profits. The Rupee's decline will inevitably increase inflationary pressures due to the increase in fuel and commodity prices and how these price increases will be passed onto consumers.

Conversely, when the Rupee declines, it generally provides exporters with increased competitiveness, as the exporters' Real Effective Exchange Rate (REER) will make their prices more attractive to buyers around the world. And, although the Rupee may still continue to depreciate, the declining value of the Rupee and a more attractive REER for exporters will provide the necessary incentive to keep the Rupee's decline in check.

Given that the Reserve Bank of India (RBI) is attempting to strike a balance between maintaining stability in the currency while also avoiding the depletion of its foreign currency reserves, it is engaging in a balanced strategy with the assistance of currency swaps, to provide stability to both domestic and foreign investors.

As global market conditions continue to be unstable and Indian investors continue to see large outflows of money from India, it will be interesting to see how the role of domestic inflows and potential changes in government policy will be critical to the future stability of the Rupee. Will this lead to the growth of the Indian economy?

References:

Economic Times
The Hindu Business