The rupee fell to a fresh record low on Friday, weighed down by persistent foreign outflows and speculation over additional US tariffs, before recovering some ground on the back of Reserve Bank of India (RBI) intervention.
The local currency depreciated 0.13 per cent to close at 88.26 per dollar, compared with the previous session’s 88.15. During the day, it weakened to 88.37 per dollar before stabilising after the central bank sold dollars through state-run banks.
“The foreign outflows were because of additional tariff fears,” said a dealer at a state-owned bank. “Nationalised banks were on the (dollar) selling side, hence, we saw some reversal by the last hour,” he added.
So far in 2025, the rupee has lost about 3 per cent, making it one of the worst performing Asian currencies.
Tariff concerns weigh on sentiment
After the US imposed steep tariffs of 50 per cent on Indian goods — the highest among major trading partners except Brazil — traders are now bracing for potential restrictions on IT services, outsourcing and remote work. Though unconfirmed, the possibility unsettled markets, given India’s heavy reliance on services exports to balance its current account.
US President Donald Trump’s latest tariff threats on semiconductor imports further clouded the global trade outlook, adding to weakness in risk assets.
“The Indian rupee traded with high volatility today, opening 5.5 paise stronger at 88.09 against the dollar before slipping to a record low of 88.365 by mid-day,” said Abhishek Goenka, founder and CEO of IFA Global. “The move reflected a tug-of-war between temporary support and persistent headwinds.”
Capital outflows persist
Analysts noted that the rupee posted its second consecutive weekly decline against the dollar. “Depreciation was driven by continued capital outflows and uncertainty surrounding the US-India trade deal,” said Dilip Parmar, senior research analyst at HDFC Securities.
Despite positive domestic developments, he said, the rupee weakened as the dollar strengthened and the Chinese yuan turned lower after four weeks of gains.
Outlook remains uncertain
Market participants said the near-term outlook for the rupee remains fragile, with temporary relief possible from a dovish US Federal Reserve but sustained weakness likely from trade frictions and portfolio outflows. Pressure from US scrutiny of India’s Russian oil imports and tariffs on labour-intensive sectors — including textiles, gems and jewellery, and aquaculture — is also expected to weigh.
Meanwhile, Finance Minister Nirmala Sitharaman flagged concerns over elevated bond yields and their impact on government borrowing.
“It is not affordable at a time when interest rates are otherwise low. Bond yields becoming unsustainably high has a big bearing on the government,” she told CNBC-TV18.
The 10-year benchmark bond yield has hardened nearly 22 basis points since the RBI’s 100 basis-point policy repo cut in June, owing to fading rate-cut hopes, increased state borrowings and concerns about fiscal slippage.
However, Sitharaman noted that since the announcement of GST rate rationalisation earlier this week, yields have shown signs of softening, as the projected loss to the exchequer turned out lower than anticipated.
