The Indian rupee plunged to a historic low on Friday, slipping past the 88-per-dollar mark for the first time, weighed down by U.S. tariff hikes, foreign equity outflows, and oil-related demand. The currency touched an intraday low of 88.29/$, before closing at 88.20/$, lower than Thursday’s close of 87.62/$.
Why the Rupee is Falling
Traders attributed the sharp depreciation to a mix of factors:
- U.S. tariff shock: The Trump administration has imposed a 25% additional tariff on Indian goods, effectively doubling duties to 50%, threatening exports.
- Foreign outflows: Equity outflows of nearly ₹29,000 crore in August and ₹17,000 crore in July have pressured the rupee.
- Oil demand: Month-end dollar demand from oil importers added to the weakness.
- Rupee-Yuan dynamics: A weakening trend against the Chinese yuan has worsened India’s trade competitiveness outlook.
Rupee vs Yuan
The rupee also hit a record low against the offshore Chinese yuan at 12.3862. In the last four months, the rupee has fallen nearly 6% against the yuan.
This matters because India and China compete directly in U.S.-bound exports such as textiles, chemicals, and engineering goods.
Interestingly, analysts say a weaker rupee versus the yuan could make Indian exports cheaper than Chinese alternatives, partly offsetting the tariff blow.
Impact on Economy
Economists warn that if the 50% U.S. tariffs remain for a year, they could shave 60–80 basis points off India’s GDP growth.
Meanwhile, the rupee has already lost 3% against the dollar in 2025, making it the worst-performing Asian currency this year.
RBI’s Stance
The Reserve Bank of India (RBI) intervened on Friday with dollar sales to curb volatility, but analysts do not expect the central bank to defend a fixed level.
“RBI may step in to smooth volatility but won’t target a specific rate,” said Kunal Sodhani of Shinhan Bank, adding that 87.20 may act as a base while 88.90 could be tested.
