Why the rupee has fallen steeply

The Indian rupee depreciated sharply against the dollar between December 2025 and March 2026, falling 11.8% to 94.65. Despite strong GDP growth, low inflation, and sound fiscal balances, the rupee's decline was unusual. The usual explanations, such as high inflation or a large trade deficit, do not justify the sharp depreciation. India's current account deficit was financed by foreign investment inflows, but net FDI flows were negative from September 2025 to January 2026, and foreign institutional investors were net sellers in the cash equity market. The sustained outflow of foreign capital put pressure on the rupee and affected sentiment around it. The Reserve Bank of India stepped in with corrective measures in April 2026, and the rupee rebounded to around 93.3 to the dollar.