The Indian rupee is poised to open with modest gains on Friday, December 5, 2025, as markets await the Reserve Bank of India's (RBI) crucial interest rate decision. This anticipated uptick follows a corrective recovery in the previous session, which helped temper a prolonged bearish phase for the currency.
Recovery from Record Low Provides Support
On Thursday, the rupee had plunged to an unprecedented low of 90.42 against the U.S. dollar before staging a notable turnaround. The currency settled at 89.9750, setting the stage for a firmer opening. Market indicators suggest the rupee will likely commence trading in the range of 89.86 to 89.88 per dollar.
Banking sources attributed Thursday's recovery to what they termed "natural" dollar selling. A trader noted that the rapid ascent of the USD/INR pair towards the 90.50 level prompted a section of exporters and some speculative accounts to sell dollars, deeming it an attractive level. "In hindsight, a correction was clearly due," the banker stated, adding that the market's focus is now on the depth and duration of this corrective move.
All Eyes on the RBI's Policy Stance
The primary focus for traders and investors has now decisively shifted to the RBI's monetary policy announcement, scheduled for later in the day. The central bank's decision on interest rates and subsequent press conference by the Governor will be scrutinized for any comments regarding the rupee's recent depreciation and the broader foreign exchange outlook.
Analysts at MUFG Bank anticipate the RBI will pause its rate-cutting cycle despite favorable conditions of low inflation and robust GDP growth. They suggest the central bank might instead announce measures to attract capital inflows, potentially from Non-Resident Indians (NRIs). The bank emphasized that the RBI chief's remarks on the currency will be closely monitored by the market.
Market pricing via overnight index swaps shows virtually no expectation of a rate cut. However, economists remain divided, with predictions split between the RBI holding rates steady and implementing a 25-basis-point reduction.
Market Context and Key Indicators
The recent recovery interrupted a concerning trend where the rupee had depreciated by over 1% during a six-day losing streak. This decline had amplified worries about a fundamental imbalance in dollar demand and supply within the local market.
Supporting data highlights ongoing foreign investor caution. According to NSDL, foreign institutional investors were net sellers in Indian equities, offloading $526.5 million worth of shares on December 4. They also sold a net $32.2 million in Indian bonds on the same day.
Other key global indicators that influence rupee sentiment include:
- The Dollar Index was down at 98.99.
- Brent crude futures traded 0.2% lower at $63.2 per barrel.
- The yield on the ten-year U.S. Treasury note stood at 4.0904%.
The market's immediate trajectory will hinge on the RBI's policy guidance and its perceived commitment to managing currency volatility while supporting economic growth.
