The Indian rupee suffered its steepest single-day decline in almost two months on Thursday, weighed down by persistent foreign fund outflows and a stronger dollar, even as state-run banks stepped in to limit the currency's losses. The rupee closed at 90.8650 per dollar, down 0.6% on the day. The currency slid to as low as 90.8438 during the session, its weakest level since mid-December .

The slide comes amid mounting pressure from foreign investors exiting Indian markets. Foreign portfolio investors have pulled more than $1.6 billion from Indian stocks so far in January 2026, extending a punishing selloff that saw nearly $19 billion withdrawn from Indian equities last year . That record outflow was driven by sharp currency swings, global trade tensions, and concerns over US tariff actions. India's trade deficit also continues to pressure the rupee, widening to $25.04 billion in December 2025 from $24.53 billion in November and $22 billion a year earlier.

The rupee lost roughly 5% in 2025, making it Asia's worst-performing currency, pressured by steep US tariffs and weak investment flows. The currency repeatedly hit record lows during the year, at one point slipping past the 91-per-dollar mark in December .

RBI Actions Provide Limited Relief

The Reserve Bank of India has been active in markets to stem the rupee's slide. State-run banks, acting on behalf of the central bank, sold dollars to cap losses on Thursday . Earlier this week, the RBI's three-year dollar/rupee swap auction drew strong demand, with bids of nearly $30 billion against the $10 billion offered, and a cutoff premium of 7.28 rupees .

Under Governor Sanjay Malhotra, the RBI has adopted a more flexible approach to the exchange rate, allowing the currency to weaken while intervening to manage excessive volatility. Analysts note the central bank has shown greater tolerance for depreciation since Malhotra took office in December 2024.

Current Updates as of January 16, 2026

Market updates confirm the rupee's vulnerability persists into Friday. The USD/INR exchange rate rose to 90.7420 on January 16, up 0.42% from the previous session, amid weaker capital inflows and firm US Treasury yields . The rupee has weakened 0.33% over the past month and 4.80% over the last 12 months, with its all-time high of 91.38 hit in December 2025. Market participants say the currency remains exposed to further weakness given uncertainty over a potential India-US trade agreement, which could lift it toward 88.50 per dollar if reached.