Dollar vs Rupee: INR falls as RBI announces rate cut by 25 bps to 5.25%

The Indian rupee erased early gains on Friday after the Reserve Bank of India (RBI) governor announced a 25 basis point cut in the repo rate. After the policy announcement, the rupee weakened to 90.07 (intraday high), compared with 89.78 before the statement.

Earlier on Thursday, the rupee touched its historic low of 90.42 per dollar. It has declined over 5 per cent over the year so far, and is Asia’s worst-performing currency.

The weakening followed even as India’s GDP grew 8.2 per cent in the July–September quarter of FY26, underlining a sharp disconnect between robust domestic growth and weak external demand. Weakness in trade and capital flows has bogged down the rupee this year, with the drag compounded by steep U.S. trade tariffs, pushing the currency below the 90 per dollar mark.

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Pressure on rupee to ease with liquidity measures, says SBI MD

In an exclusive interaction with Zee Business, SBI MD Ashwini Kumar Tewari said that pressure on the rupee is set to ease given the RBI's latest liquidity measures.

The analyst also noted the RBI's decision in view of the evolving liquidity conditions and the outlook to conduct OMO purchases of government securities of Rs 1,00,000 crore and a 3-year USD/INR buy-sell swap of USD 5 billion this month to inject durable liquidity into the system.

Morgan Stanley's views on Rupee

Morgan Stanley believes the recent weakness in the Indian rupee is being driven by a combination of factors, including a widening trade deficit, subdued foreign portfolio inflows, and uncertainty surrounding the anticipated US–India trade deal. Investor concerns about the Reserve Bank of India’s foreign exchange policy have added to the pressure.

The brokerage expects that conditions for a mild recovery in the rupee may emerge only in the first quarter of 2026, as the overall balance of payments position improves and clarity on the trade agreement increases. Despite the currency volatility, Morgan Stanley anticipates that the RBI still has room to cut the repo rate by 25 basis points at the December 5 meeting, which would bring the terminal policy rate down to 5.25 per cent.

RBI monetary policy key points

The Reserve Bank of India (RBI) cut the repo rate by 25 basis points to 5.25 per cent after a unanimous MPC decision aimed at boosting economic growth. Governor Sanjay Malhotra announced additional liquidity measures, including Rs 1 lakh crore worth of open market government securities purchases and a $5 billion dollar-rupee swap. Citing robust macroeconomic conditions—8.2 per cent Q2 GDP growth and inflation down to 1.7 per cent—Malhotra described the moment as a 'Goldilocks phase' for the economy.

The RBI also raised its GDP growth forecast to 7.3 per cent while maintaining a neutral policy stance, noting that earlier rate cuts totalling 100 bps from February to June were still working through the system. Foreign exchange reserves have climbed to $686 billion, offering 11 months of import cover. However, global trade and geopolitical uncertainties remain key risks.

The central bank expects lower policy rates and increased liquidity to reduce borrowing costs and stimulate economic activity, though the impact will depend on how effectively banks pass the cuts on to borrowers.