Why the Indian Rupee Is Falling in 2025?

The Indian rupee has been under pressure through 2025, slipping to fresh lows against the US dollar. While currency movements are shaped by a mix of global and domestic factors, the rupee’s decline this year has raised concerns as it lags behind many of its Asian peers.

Rupee’s Performance in 2025

Over the past six months, the rupee has steadily depreciated, underperforming other emerging market currencies. By the end of September 2025, the USD/INR exchange rate closed at 88.79, just a step away from it's all-time weakest level of 88.80. This marks a fall of more than 3.5% for the year, making the rupee one of Asia’s weakest currencies in 2025.

In comparison, currencies like the Brazilian real, South African rand, and Indonesian rupiah have all recorded gains against the dollar in the same period, reflecting the rupee’s relative weakness.

Factors Behind the Decline

The rupee’s fall can be traced to a combination of global pressures and domestic challenges. One of the biggest drivers has been capital outflows. Foreign investors pulled nearly $1.8 billion out of Indian equities this year, fuelling demand for dollars and dragging the rupee lower. At the same time, higher government borrowing has added to investor caution.

Gold imports have also played a major role. In August alone, India’s gold imports jumped 56.7% year-on-year to $5.43 billion. Seasonal and cultural demand for gold continues to create additional pressure on foreign currency reserves, widening the gap between inflows and outflows.

On the trade front, exports grew by 6.7% year-on-year in August, but imports fell by 10.1%. Despite this improvement, the overall trade deficit remains a concern, keeping pressure on the currency.

Dollar Dynamics vs Rupee Weakness

While the rupee’s fall suggests dollar strength, the broader picture is more complex. The US Dollar Index, which tracks the dollar against major global currencies, actually declined by about 6.6% between March and September 2025.

Against specific currencies, the dollar has shown mixed performance. It strengthened against the euro and the British pound but slightly weakened against the Japanese yen. This indicates that the rupee’s troubles are less about a strong dollar and more about India-specific pressures.

RBI’s Role

The Reserve Bank of India has been active in the background, intervening to prevent sharp fluctuations while allowing gradual depreciation. This approach helps maintain market stability without exhausting reserves.

Read more:RBI Allows Rupee Lending by Authorised Dealer Banks in Neighbouring Countries

The Bigger Picture

The rupee’s fall in 2025 reflects the complex interplay of domestic imbalances, global uncertainties, and investor sentiment. While the currency’s weakness highlights near-term challenges, it also underscores the need for steady policy management to navigate external shocks and internal pressures.

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