The rupee has had a turbulent year and the pressure only intensified last week when it slipped past the 90-per-dollar mark for the first time. With a 5 percent drop since January, the currency is now the worst performer in Asia. The RBI stepped in with an aggressive set of measures, including a 25 bps rate cut, a Rs 1 lakh crore open-market bond purchase, and a $5 billion buy–sell swap to ease dollar tightness. While these steps have helped calm nerves, the focus now shifts to the US Federal Reserve’s policy decision later this week.
Traders are almost fully pricing in a 25 bps rate cut by the Fed at its December 9–10 meeting. Historically, lower US rates weaken the dollar and support emerging market currencies like the rupee. But this time, analysts warned the impact may be far more muted.
Why a Fed rate cut may not be enough
In theory, a softer dollar gives rupee some breathing room. Lower US yields push foreign investors toward higher-yielding emerging markets, bringing in capital that supports the local currency.
But analysts said that the Fed’s likely rate cut has already been priced in: meaning the rupee may not see any significant bounce unless broader conditions turn favourable.
At the moment, India’s trade gap is widening, foreign inflows remain patchy, and global investors are still cautious amid geopolitical tensions. This reduces the chance of any meaningful rupee appreciation, even with a US rate cut on the table.
“Fed rate cuts are already factored in by the currency markets, and unless India’s trade deal with the US materialises, nothing will significantly change the rupee’s direction,” said Bhavik Patel, senior commodities analyst at Tradebulls Securities.
India's record trade deficit in October, combined with sluggish global demand, suggests the rupee is facing a structural rather than temporary challenge.
Weak inflows weighing on the currency
Foreign investment: both FPI and FDI—has remained uneven this year, offering little support to the rupee. Analysts believe inflows may pick up if global volatility eases, but for now, weak participation is amplifying the currency’s sensitivity to negative news.
“While RBI’s liquidity injection and neutral policy stance can offer temporary relief, weak foreign inflows and a wide trade deficit will likely cap any strong appreciation,” said Jigar Trivedi, senior analyst at Reliance Securities. He sees 89.3–90.4 as the key levels to watch this week.
Aamir Makda, commodity and currency analyst at Choice Broking, said the Fed’s cut may be “marginally positive” for the rupee. He expects USD/INR to “sustain above 90” in the coming week, with 88.2–87.5 acting as key support levels.
The outlook is further clouded by the fact that the US dollar index has not surged dramatically in recent months. This suggests the rupee’s weakness is not driven by broad dollar strength, but by India-specific factors. Increased dollar demand for imports, corporate hedging and external debt repayments has intensified pressure. At the same time, global investors have been seeking safer assets, limiting flows into emerging markets.
A Fed rate cut may cool volatility, but a strong and sustained rebound in the rupee looks unlikely unless India’s trade deficit narrows and foreign inflows return in a meaningful way. For now, the rupee remains in a tight spot: stabilisation is possible, but a deeper recovery appears out of reach.
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