On December 2, 2025, the Indian rupee plunged to an all-time low of 89.85 per US dollar, and the currency market reacted with intense volatility. Traders, policymakers, and global investors watched the chart as the rupee lost momentum within minutes. Weaker foreign inflows, rising dollar strength, and lower risk appetite fueled the decline. The Reserve Bank of India (RBI) entered the market immediately, and the central bank bought rupees aggressively to defend the 90-per-dollar level. The intervention created a temporary rebound, but traders continued to hedge aggressively because they expected more pressure on the currency in the coming weeks.
This article breaks down the event in detail and explains the forces that drove the rupee to its lowest point in history.
Heavy Selling Pressure Drives the Rupee Toward 90
The currency market started the December session with caution, but fear quickly dominated sentiment. Foreign portfolio investors (FPIs) sold Indian equities at a rapid pace due to global risk aversion. They also withdrew money from Indian debt markets because US Treasury yields climbed steadily for two weeks. These outflows reduced dollar supply in the domestic market, so the rupee faced direct pressure.
The US dollar index (DXY) also gained over the previous 10 days. Strong US macro data supported the dollar, and investors shifted money toward the US because they expected the Federal Reserve to delay rate cuts. This trend pulled money away from emerging markets. The rupee felt the immediate impact of this shift.
Domestic importers joined the rush for dollars. Oil companies bought large dollar quantities because crude oil prices jumped above $89 per barrel during the same week. This created additional demand for the US currency. When multiple sectors demanded dollars simultaneously, the rupee stood without support and drifted closer to the crucial 90-per-dollar mark.
RBI Steps In and Attempts to Stabilize the Market
As the rupee touched 89.85, the RBI took action. The central bank sold dollars from its reserves to bring stability. It used spot-market intervention and signaled readiness to protect the currency. The RBI monitors the exchange rate constantly, so the team responded immediately when the psychological barrier of 90 came into sight.
The central bank’s strategy focused on three goals:
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Slow down speculation – The RBI drained liquidity from traders who tried to short the rupee.
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Provide temporary breathing room – A weaker currency increases import costs, so the RBI stepped in to avoid inflation shocks.
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Reassure the market – The intervention reminded investors that the RBI holds large forex reserves and maintains the ability to control volatility.
RBI’s intervention steadied the rate around 89.90 for the rest of the day. The central bank avoided long public statements because it prefers silent intervention during high-volatility sessions. Its presence created confidence, but traders still expected more weakness because the broader trend supported a stronger dollar.
Foreign Flows Shrink and Trigger the Slide
Foreign investment flows influence the rupee more than any other factor, and December 2025 opened with weakness in both equity and debt inflows.
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FPIs sold over ₹4,300 crore in Indian equities during the previous week.
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Foreign debt investors reduced exposure because US bond yields rose sharply.
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Many global funds increased hedges against emerging-market currencies.
When global funds reduce exposure, the domestic market loses dollar supply. Less supply pushes the exchange rate upward. This dynamic created a sharp decline in the rupee. India’s strong economic fundamentals could not offset these flows because currency markets react primarily to real-time demand and supply.
Oil Prices Add Additional Weight
India imports over 85% of its crude oil requirements. When crude prices rise, oil-marketing companies buy more dollars. They hedge future imports, and this increases demand for the US currency.
In late November and early December 2025, crude prices stayed above $89 due to geopolitical tensions in the Middle East. This trend increased India’s import bill. Oil companies hedged aggressively, and their hedging volume intensified the slide in the rupee.
The market knew that crude prices might not fall immediately, so traders expected the rupee to stay under pressure until energy markets stabilized.
Corporate Dollar Demand Strengthens the Downtrend
Large Indian corporations also bought dollars for December payments. Technology companies, global manufacturers, and shipping firms increased hedging positions because they feared more weakness in the rupee. Their hedging behavior accelerated the decline.
Corporates normally hedge in a staggered manner, but sudden weakness in the rupee forced them to rush into the market. This spike in demand contributed to the intraday slide.
Forward Premiums Rise as Hedging Costs Increase
As the rupee approached the 90 mark, forward-market premiums surged.
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1-year forward premium rose 7 basis points.
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1-month premium touched a 7-month high.
Higher forward premiums signal stronger demand for protection against rupee depreciation. Traders pushed premiums higher because they expected more weakness in the near future. Higher hedging costs affect companies with foreign currency exposure, so exporters and importers adjusted strategies immediately.
Rising premiums also create a feedback loop. When hedging becomes expensive, traders rush to secure positions earlier, and this behavior increases short-term volatility.
Domestic Fundamentals Remain Strong, but Sentiment Drives the Market
India’s economic fundamentals look stable overall:
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GDP growth stays above 6.7%.
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Inflation remains within RBI’s comfort range.
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Forex reserves stay around $688 billion (despite the recent dip).
These numbers show strong fundamentals, but currency markets often respond to immediate global conditions rather than long-term domestic strength. The rupee fell sharply because global flows turned negative and the dollar gained aggressively.
Currency traders gave more weight to macro triggers from the US and global markets. They ignored India’s strong economic base because short-term dynamics looked more influential.
What Happens Next for the Rupee?
The near-term outlook for the rupee depends on several triggers:
1. US Federal Reserve Policy
If the Fed slows down the pace of rate cuts or signals a higher-for-longer stance, the dollar will gain more strength. This movement could push the rupee toward 90 again.
2. Crude Oil Price Trend
If crude stays above $85–$90, import demand for dollars will rise. This adds pressure on the rupee.
3. FPI Flow Pattern
If global investors continue to pull money out of Indian markets, the rupee may remain under stress.
4. RBI Intervention Strategy
The RBI holds large forex reserves, so it can stabilize the market during sharp volatility. Its intervention pattern will decide how the currency moves in the short term.
Conclusion
The rupee’s fall to 89.85 per dollar on December 2, 2025, marked a defining moment in India’s currency market. Heavy selling by foreign investors, strong demand for dollars from corporates and oil importers, and the strong US dollar created the perfect environment for a sharp decline. The RBI acted quickly and prevented the currency from breaking the 90 mark, but traders still expected more volatility.
The event demonstrated how global macroeconomic forces, investor psychology, and domestic market behavior can combine to move a currency sharply within a single trading session. India’s strong fundamentals offer long-term support, but short-term market pressure continues to drive the rupee’s trajectory as global conditions remain uncertain.
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