India Rupee's Record Fall Below 90: A Warning for Emerging Market Investors

The Indian rupee's recent plunge below ₹90 to the US dollar has sent shockwaves through global financial markets, marking a critical inflection point for (EM) investors. As of November 21, 2025, , reflecting a broader trend of sustained depreciation driven by structural economic pressures and geopolitical tensions. This milestone, the lowest in four decades, underscores the growing risks of currency volatility in EM markets and the limitations of central bank intervention in stabilizing exchange rates. For foreign investors, the episode highlights the need to reassess exposure to EM currencies and adopt hedging strategies to mitigate downside risks.

Currency Risk: A Perfect Storm of Trade, Capital Flows, and Policy

The rupee's decline is not an isolated event but the result of a confluence of factors. First, escalating trade tensions between India and the United States have exacerbated capital outflows. US tariffs on Indian exports, , have eroded business confidence, while retaliatory measures from India have further strained bilateral relations. Second, from Indian equities in 2025 alone, reflecting a loss of appetite for EM assets amid global uncertainty. This exodus has intensified downward pressure on the rupee, as capital flight outpaces inflows from trade and remittances.

The Reserve Bank of India (RBI) has responded with a measured approach, opting for a "gradual adjustment" rather than aggressive intervention. , the RBI has refrained from large-scale dollar purchases to defend the currency. This strategy aims to enhance export competitiveness by allowing the rupee to weaken, but it has also amplified short-term volatility. As of November 2025, year-to-date, .

Central Bank Intervention: A Double-Edged Sword

The RBI's hands-off approach contrasts with its historical role as a currency stabilizer. Traditionally, the central bank has used tools like the (MSF) and open market operations to curb excessive volatility. However, in 2025, the RBI has prioritized long-term structural adjustments over short-term stability. By allowing the rupee to depreciate, the RBI hopes to boost India's export sector, . Yet, this policy comes at a cost: higher import costs for oil and commodities, .

The RBI's reluctance to intervene aggressively also reflects a broader shift in EM central banking. With global liquidity tightening and US interest rates remaining elevated, EM central banks face a trade-off between defending their currencies and maintaining domestic monetary stability. For the RBI, the latter has taken precedence, even as the rupee's decline raises concerns about financial stability and investor sentiment.

Implications for Foreign Investors: Risks and Opportunities

For foreign investors, the rupee's depreciation presents both risks and opportunities. On the downside, the weakening currency increases the cost of servicing dollar-denominated debt for Indian corporates and sovereign entities. It also amplifies inflationary pressures, which could dampen consumer spending and corporate earnings. Additionally, the lack of central bank support suggests that currency volatility will persist, making it harder for investors to predict exchange rate movements.

However, the depreciation also creates opportunities for those who can navigate the risks. A weaker rupee makes Indian exports more competitive, potentially boosting the earnings of export-oriented sectors like textiles, pharmaceuticals, and IT services. For long-term investors, this could represent a buying opportunity in undervalued assets.

Actionable Strategies for EM Investors

To hedge against currency risk in EM markets, investors should consider the following strategies:
1. : Use forward contracts or currency options to lock in exchange rates and reduce exposure to short-term volatility. For example, investors holding Indian equities could hedge a portion of their rupee exposure to mitigate losses from further depreciation.
2. : Spread investments across multiple EM currencies to avoid overexposure to any single market. The rupee's decline is part of a broader trend, but not all EM currencies face the same risks.
3. Monitoring Policy Shifts: Stay attuned to central bank policies and trade developments. The RBI's decision to allow the rupee to weaken was a calculated move, but future interventions could alter the trajectory of the currency.
4. : Favor sectors that benefit from a weaker rupee, such as exporters and commodity producers, while reducing exposure to import-dependent industries.

Conclusion

The Indian rupee's fall below ₹90 is a stark reminder of the fragility of EM currencies in a high-interest-rate environment. While the RBI's strategy aims to strengthen India's long-term economic fundamentals, the immediate costs-higher inflation, capital outflows, and investor uncertainty-are significant. For foreign investors, the episode underscores the importance of proactive risk management and strategic hedging. As the rupee's volatility continues, those who adapt to the new reality of EM currency markets will be better positioned to navigate the challenges ahead.