Rupee Crashes to Record Low of 89.76 Against US Dollar Despite Strong Q2 GDP Surge

The Indian rupee continued its sharp slide on December 1, hitting a new all-time low of 89.76 against the US dollar—even as India posted an impressive 8.2% year-on-year GDP growth for Q2. The currency’s decline comes at a time when domestic equities are clocking record highs, but the broader macro picture continues to weigh heavily on forex sentiment.

Despite strong economic growth, the rupee remained under pressure and extended its downward trajectory, breaking past its previous record low of 89.49, touched just two weeks earlier.

Rupee One of the Worst-Performing Currencies in 2025

Since November 3, the rupee has depreciated nearly ₹1 against the US dollar.
According to the data provided, the rupee has also been ranked among the worst-performing currencies of 2025, outperforming only the Turkish Lira and Argentine Peso.

This persistent weakness has made the Indian currency one of Asia’s most underperforming units this year, despite favourable domestic macros.

Strong GDP But Weak Currency: What’s Driving the Disconnect?

India’s 8.2% GDP growth for–July-September quarter triggered strong optimism in the equity markets and also nudged bond yields higher on Monday. However, these positive indicators did little to support the currency, which continued to slide under multiple pressures.

Experts quoted in the original report highlight that major macroeconomic announcements—typically supportive of the currency—failed to provide any sustained momentum.

On the same day, equities hit fresh lifetime highs, marking a stark divergence between stock market performance and the forex market.

Heavy FII Outflows Exerting Pressure

Foreign investors sold about $400 million worth of Indian equities on Friday.
With this, year-to-date FII outflows have crossed $16 billion, contributing significantly to the rupee’s persistent weakness.

Large and consistent foreign fund outflows reduce dollar supply in the market and push the rupee lower. The report notes that foreign portfolio flows have been dented sharply through 2025 due to global monetary conditions and bilateral trade concerns.

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10-Year Bond Yields Edge Higher

As the rupee fell, the 10-year government bond yield climbed to 6.553%, its highest level in nearly a week. Rising yields usually reflect investor caution and expectations of tighter liquidity conditions.

The combination of rising yields, record-high equities, and a falling currency paints a complex picture for the market—a sign that capital flows remain volatile despite healthy economic output.

Non-Deliverable Forward (NDF) Market Impact

A trader quoted by Reuters said that the maturity of large positions in the non-deliverable forwards (NDF) market added further pressure on the rupee on Monday.

The NDF market—used heavily by overseas investors and institutions—can sharply influence spot market movements when large positions unwind. These maturities appear to have amplified selling pressure on the currency during the session.

RBI’s Forward Book Expands Over $63 Billion

Data released after market hours on Friday showed that the RBI’s forward book expanded to over $63 billion in October.

A growing forward book typically reflects the central bank’s interventions or hedging strategies in the currency markets. While the RBI has historically stepped in to smooth volatility, the current depreciation trend suggests that persistent external pressures continue to outweigh stabilising measures.

Stalled Tariff Relief Weighing on Sentiment

The report notes that comments from US and Indian officials last month had raised expectations that the steep 50% tariffs on Indian exports might soon be reduced.

However, with no concrete agreement or timeline, uncertainty has weighed on the rupee.

These tariffs have already hurt trade flows and reduced portfolio inflows into Indian equities, further weakening the currency’s support base.

Record Trade Deficit Adds to Pressure

India’s merchandise trade deficit reached an all-time high in October, adding another layer of pressure on the currency. A wider trade deficit means higher demand for dollars to pay for imports, which naturally pushes the rupee lower.

Combined with weak foreign flows, the trade deficit has left the currency highly dependent on RBI interventions for temporary support.

Why the Rupee Continues to Slide?

Based strictly on the information provided, the key reasons behind the currency’s fall include:

1. Persistent FII Outflows

• Overseas investors have pulled out over $16 billion from equities in 2025.

• Another $400 million was sold just on Friday.

2. Record Trade Deficit

• India’s merchandise trade deficit hit a historic high in October, raising dollar demand.

3. Lack of Clarity on Tariffs

• No resolution yet on steep 50% US tariffs on Indian exports.

4. NDF Market Maturities

• Large unwinding of forward positions pressured the spot rate.

5. Limited Impact of Strong GDP

• Despite 8.2% GDP growth, currency markets remained unaffected.

6. Rising Bond Yields

• 10-year yields at 6.553% signal tighter conditions, not supportive for the rupee.

Market Outlook

While equities have surged to record highs, the currency continues to struggle, highlighting a significant divergence in market sentiment. The rupee’s direction will likely remain influenced by:

• FII flows

• US dollar strength

• Tariff negotiations

• RBI’s intervention strategy

• Global risk appetite

For now, the rupee remains under sustained pressure with no immediate signs of reversal.

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