Indian Rupee Hits Record Low: USD/INR Crosses ₹88 Mark
In a significant and concerning development for the Indian economy, the Indian Rupee has touched a new historic low against the US Dollar. On Friday, August 29, 2025, the USD/INR exchange rate breached the psychological barrier of ₹88, trading at levels not seen before. This sharp depreciation is primarily attributed to a new round of US tariffs on Indian goods, which has compounded existing global economic uncertainties.
The Impact of New US Tariffs
The immediate trigger for the rupee's steep decline was the implementation of fresh tariffs by the United States government. The US, citing national security concerns, has imposed a punishing 50% tariff on a significant portion of Indian exports. This is a substantial increase from the previous 25% duty and is expected to hit labor-intensive sectors like textiles, gems and jewelry, and carpets the hardest.
Market analysts and economists are projecting a significant hit to India's export earnings. The Global Trade Research Initiative (GTRI) estimates that the new tariffs will affect approximately $60.2 billion worth of Indian exports to the US, potentially leading to a sharp drop in export volumes and threatening jobs in these key sectors. This creates a supply-demand imbalance in the forex market, with a higher demand for dollars and a reduced inflow of foreign currency, putting immense pressure on the rupee.
RBI's Intervention: A Battle to Stabilize the Rupee
The Reserve Bank of India (RBI) has not been a silent spectator to this volatility. The central bank has been actively intervening in the foreign exchange market to curb the rupee's free fall. According to recent reports, the RBI has been selling US dollars to increase the supply in the market and stabilize the rupee's value. In the week ending August 1, India's forex reserves saw their sharpest weekly decline in eight months, plunging by $9.3 billion to $688 billion, largely due to RBI's aggressive intervention efforts.
The RBI's strategy has been multi-pronged, including both onshore spot market interventions and the tactical use of offshore non-deliverable forwards (NDFs). The goal is not to target a specific exchange rate but to manage volatility and prevent a runaway depreciation that could fuel imported inflation. However, sustained intervention comes at a cost, as it depletes India's forex reserves, a crucial buffer against external shocks.
The Broader Economic Context
The rupee's current predicament is part of a larger, more complex economic picture. The new US tariffs are just one of several factors at play. The Indian currency has been under pressure for some time due to:
- Global Economic Volatility: The US dollar has been strengthening against most major and emerging market currencies, driven by factors such as a hawkish stance from the US Federal Reserve and ongoing geopolitical tensions.
- Foreign Investment Outflows: Foreign portfolio investors (FPIs) have been withdrawing funds from the Indian equity and debt markets, contributing to the demand for dollars.
- Trade Deficit: The widening trade deficit, particularly with a rising oil import bill, puts continuous pressure on the rupee.
While the new US tariffs have undoubtedly exacerbated the situation, the Indian government and the RBI are banking on the country's strong macroeconomic fundamentals to weather the storm. India's robust domestic consumption and high-growth trajectory are seen as key strengths. Nevertheless, the recent developments highlight the growing challenges posed by protectionist trade policies and global economic shifts.
Forex analysts and market participants will be closely watching the RBI's next moves and the government's response to the new tariffs. The ability of India's policymakers to manage this dual challenge of currency depreciation and trade friction will be crucial for maintaining economic stability in the coming months
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