Published on: 2025-11-27
The Indian Rupee's slide against the US Dollar in 2025 has become one of the most scrutinised currency developments in Asia. As of late November 2025. the conversion rate stands at approximately 1 INR = 0.0112 USD.
Yet this seemingly modest number belies a deeper story: despite India's impressive growth trajectory, with GDP expansion projected between 6.6% and 7% for FY2025/26. the Indian Rupee continues to lose ground against the US Dollar.
The disconnect between robust domestic fundamentals and a weakening currency underscores a core reality: global macro‑economic dynamics and structural vulnerabilities in India are exerting far greater influence on the INR/USD exchange rate than domestic growth alone.
This article explores the main global headwinds, internal economic pressures, central‑bank policy responses, and stabilising factors shaping the Rupee's trajectory — and what this means for the near future.
The single most influential factor behind the 2025 INR/USD trend is the Fed's higher-for-longer interest-rate stance. With US yields remaining elevated, global investors have directed capital toward safer, higher-returning US Treasuries.
For emerging markets like India, this creates:
Capital outflows, especially from foreign portfolio investors (FPIs)
Reduced USD liquidity domestically
Downward pressure on the Indian Rupee
As long as the rate differential heavily favours the US, the Rupee remains structurally disadvantaged.
Geopolitical fragmentation—including trade disputes, regional conflicts, and prolonged US tariff actions affecting Indian exports—has amplified risk aversion.
In such an environment, global capital naturally gravitates toward safe-haven assets, especially the US Dollar, intensifying INR/USD depreciation pressure.
Sharp one-day declines in the Rupee during 2025 highlight how sensitive the currency has become to global surprises—be it US data releases, oil price spikes, or risk-off shifts.
This volatility strengthens the Dollar's dominance while weakening the INR further.
India runs a consistent current account deficit (CAD) due to:
A widening trade deficit
Heavy reliance on crude oil imports
Global energy price volatility
Every additional dollar spent on imported oil exerts downward pressure on the INR/USD pair.
2025 has seen intermittent but notable FPI outflowsfrom Indian equity and debt markets. These flows tend to follow global risk sentiment and US rate expectations.
FDI inflows remain stable, but not strong enough to fully offset:
The trade deficit
FPI outflows
Seasonal USD demand from corporates
As a result, net foreign currency inflows remain insufficient to support the Rupee.
India's Real Effective Exchange Rate (REER) has often appeared stretched, prompting intermittent market corrections.
If the Rupee is perceived as overvalued relative to peers, traders anticipate depreciation—reinforcing the downward INR/USD trend.
The RBI aims to prevent "sharp and disorderly" movements, not defend a specific level. It intervenes through:
Selling USD from its reserves
Smoothing volatility
Managing intraday fluctuations
However, even with sizeable reserves, the RBI cannot fight a global Dollar bull cycle indefinitely.
The IMF recently reclassified India's de facto exchange-rate regime from "stabilised" to "crawl-like".
This implies the RBI is allowing more gradual INR depreciation so the Rupee can function as a shock absorber, especially during periods of external stress.
A weaker Rupee raises imported inflation, especially for:
Energy
Electronics
Industrial inputs
Yet tightening policy aggressively could suppress domestic growth. The RBI therefore walks a tightrope:
Containing inflation
Supporting growth
Avoiding excessive INR/USD volatility
India's robust GDP trajectory, strong domestic consumption, and public investment cycle provide macroeconomic stability—even as the currency weakens.
Headline inflation remains relatively well-managed compared with global peers. This gives the RBI precious room to manoeuvre and prevents panic selling of the INR.
India's regulated banking and financial sector, with improved asset quality and strong capital adequacy, contributes to confidence in long-term economic prospects—softening the INR's downside.
The Rupee's struggle in 2025 is fundamentally a contest between strong domestic fundamentals and powerful global forces. India's growth story remains compelling, but the external environment—characterised by a dominant US Dollar, high US yields, geopolitical tension and persistent import dependency—continues to overshadow these positives.
Most institutional forecasts suggest that the INR will remain under pressure through FY2026, with the potential for further modest depreciation if:
US rates stay elevated
Oil prices rise
FPI outflows intensify
Medium- to long-term INR stability will depend on:
Accelerating structural reforms
Strengthening supply-chain competitiveness
Finalising key trade agreements
Reducing oil import dependency
A potential future pivot by the US Federal Reserve
The Rupee is weakening because strong domestic growth is outweighed by global factors such as high US interest rates, risk-off sentiment, oil dependency and persistent capital outflows, all of which increase demand for US Dollars.
Higher-for-longer US interest rates attract global capital toward US assets, strengthening the Dollar. This widens the rate differential, drives FPI outflows from India and puts sustained downward pressure on the Rupee throughout 2025.
India's strong GDP growth provides some support, but it cannot fully offset external pressures. Robust domestic demand and investment help limit volatility, yet global monetary tightening and energy import costs still dominate currency movement.
The RBI aims to prevent sharp volatility rather than defend a fixed level. It intervenes strategically, sells USD to smooth fluctuations and balances inflation control with growth, though it cannot counter strong global Dollar momentum indefinitely.
Most forecasts suggest gradual Rupee weakness will persist. Continued US monetary tightness, geopolitical risks and India's import dependency remain challenges, though any Federal Reserve pivot or stronger FDI inflows could stabilise the INR/USD trajectory.
Reducing oil dependency, deepening supply-chain competitiveness, increasing exports, securing trade agreements and attracting more long-term FDI would support the Rupee. A future shift in US monetary policy could also offer meaningful relief.
The Rupee's weakness in 2025 reflects strong global headwinds overpowering India's solid domestic fundamentals. A dominant US Dollar, high US rates and India's import dependence continue to pressure the INR/USD pair. While further gradual depreciation is likely, structural reforms, stronger exports and a future shift in US monetary policy could help stabilise the Rupee over time.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
