The currency’s underperformance is particularly striking given the relative stability of its Asian peers. While most regional currencies managed modest gains against a softening U.S. Dollar Index—largely influenced by the geopolitical turbulence surrounding U.S. President Donald Trump’s oscillating rhetoric regarding Greenland—the rupee remained mired in a domestic slump. Market analysts suggest this trend is a continuation of the pressures observed throughout 2025, where the rupee has consistently struggled to find its footing regardless of favorable global cues. The primary catalyst remains a relentless exit by foreign investors from the Indian equity markets, which has stripped the currency of vital support.
Compounding this capital flight is a shift in strategy among domestic stakeholders. Importers and corporate entities, spooked by the currency's rapid decline, have intensified their hedging activities to protect against further depreciation. Conversely, exporters have notably retreated from the forward market, slowing their dollar sales and effectively choking the supply of greenbacks. This imbalance between demand and supply has created a vacuum that market forces alone have been unable to fill.
To stem the tide, the Reserve Bank of India (RBI) has been forced into active combat. Bankers report that the central bank intervened significantly on at least two occasions this week, deploying a combination of spot market dollar sales and buy/sell swaps to stabilize liquidity and prevent a disorderly collapse. However, while these regulatory maneuvers have managed to blunt the velocity of the fall, they have yet to reverse the overarching bearish sentiment. As the rupee hovers near unprecedented lows, the focus shifts to whether the RBI can maintain this defensive posture or if the currency is destined for a new, lower baseline in the face of ongoing structural outflows.
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