The rupee’s record low against the US dollar is primarily driven by external factors, not domestic economic weakness. Key reasons apart from the imposition of steep US tariffs (50%) on Indian exports include persistent capital outflows, dollar demand linked to non-deliverable forward maturities. These factors have led to a roughly 6% year-to-date depreciation, making the rupee Asia’s most negatively impacted currency in 2025. Other emerging market currencies have fared better as a result of lower tariffs and consequently the rupee weakened against the major currencies like euro, yen, pound, and others.
Despite India’s strong GDP growth, robust forex reserves, and a manageable current account deficit, the lack of progress in the US–India trade negotiations and extended selling by foreign portfolio investors have weighed on the sentiment. Importers have felt the pinch, but inflation remains benign and the trade deficit has narrowed, limiting broader economic impact.
The RBI remains focused on curbing volatility rather than defending a specific level, supporting a market-driven approach. Looking ahead to 2026, the rupee is expected to relatively appreciate if the India-US trade deal is finalized and capital flows improve.
