Year-ender 2025: Indian rupee saw the most volatility

INR breached 91 per USD amid US tariffs, record FII outflows, RBI restraint and trade deal uncertainty

The rupee (INR) saw its most volatile year in recent history in 2025. The currency shifted from the mid-86 level to breaching the 91-per-US-dollar mark in December, primarily due to aggressive trade tariffs imposed by the United States and record-breaking foreign capital outflows.

On December 16, the rupee hit its deepest historical intraday low, reaching 91.14 against the USD. This crash was precipitated by both global and domestic factors, particularly a record $18 billion withdrawal by foreign institutional investors (FIIs) from Indian equity markets throughout the year as they moved toward dollar-backed assets.

The currency closed above the psychological 90-mark for the first time on December 3, at 90.15. This was attributed to uncertainty regarding the India-US trade deal, heavy foreign portfolio investor sell-offs, and a perceived lack of aggressive intervention from the RBI to stop the slide in the currency during the initial breach.

A major factor for the rupee's weakness in the second half of 2025 was the US government's imposition of a 50% tariff on a wide range of Indian goods. This dampened trade sentiment. Markets remained sensitive to the status of trade negotiations. Though India and the US engaged in negotiations through much of 2025, India's Chief Economic Adviser V. Anantha Nageswaran said in a Bloomberg interview earlier in December that he expects an agreement to be reached by March 2026.

On December 3, Nageswaran said the government was "not losing sleep over the declining rupee". The falling rupee was not affecting inflation or exports, he said, and expressed hope that it should improve next year.

In early December, the Reserve Bank of India adopted a "restrained approach," with Governor Sanjay Malhotra stating the Central bank does not target any band for the rupee in the forex market, and allows the domestic currency to find its own correct level.

"We don't target any price levels or any bands. We allow the markets to determine the prices. We believe that markets, especially in the long run, are very efficient. It's a very deep market," he said while replying to a question on rupee depreciation at a post-monetary policy press meet.

On December 31, the rupee closed at 89.88, though it remains weak compared to the start of the year.

Despite currency weakness, India's domestic fundamentals remained relatively robust, with GDP growth reaching 8.2% in the July–September quarter. It was the highest growth rate achieved in the last six quarters, and much higher than the RBI projection of 7 per cent.

The GDP growth in the second quarter was better than the 7.8 per cent of the preceding three months and 5.6 per cent in the year-ago period.

Union Minister of Commerce and Industry Piyush Goyal attributed the growth to government reforms and a boost in domestic manufacturing, refuting claims that global trade uncertainties would derail the economy.

Earlier in the year, the Economic Survey had already described India's fundamentals as "robust", backed by calibrated fiscal consolidation and stable consumption, while warning about the need to navigate global headwinds.