The Indian rupee tumbled to a historic low on Friday, August 29, 2025 (IST), breaching the psychologically key ₹88 per U.S. dollar level as traders grappled with the fallout from steep new U.S. tariffs on Indian exports. The currency hit an intraday trough around 88.29–88.31 before paring losses on suspected central bank dollar sales; it settled near 88.19, its weakest close on record.
What triggered the slide
The move followed Washington’s decision this week to add 25 percentage points of tariffs on a swath of Indian goods—effectively doubling total duties to 50% for many categories. The escalation has stoked fears of a hit to India’s export competitiveness, corporate earnings and employment in sectors such as textiles, gems & jewellery and seafood, prompting risk aversion across local assets.
How bad was the market reaction?
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Intraday low: ~88.29–88.31 per dollar (new all-time low).
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Close: ~88.19 per dollar (record closing low).
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August performance: The rupee’s slump extended its fourth straight monthly decline.
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Asia ranking: Down about 3% year-to-date, the rupee is Asia’s worst-performing major currency in 2025 so far.
Market participants reported Reserve Bank of India (RBI) intervention via dollar sales to smooth volatility, limiting a deeper slide beyond 88.30. Traders said the central bank’s presence turned the tide midday, though it refrained from defending any fixed level.
Why tariffs matter for the rupee
Higher U.S. duties threaten to shrink India’s export volumes and margins, widen the trade deficit, and deter foreign portfolio flows—all rupee-negative dynamics. Analysts warn the tariff shock could shave 60–100 basis points off GDP growth, depending on the final coverage and passthrough, with some desks flagging risks of further depreciation toward 89 per dollar if outflows persist.
Foreign investors have already pulled billions from Indian equities and debt in 2025 amid global risk jitters and India-specific concerns, intensifying pressure on the balance of payments.
Spillovers beyond USD/INR
The rupee also hit a record low versus the offshore yuan, underscoring broad weakness against Asian peers. Currency strategists note that while a softer rupee can cushion some tariff pain for exporters, the pass-through to import costs rises quickly when depreciation accelerates.
What it means for you
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Imported inflation risk: A weaker rupee makes fuel, electronics, and other imports costlier, potentially nudging inflation higher in coming months.
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Rates & RBI stance: The RBI is likely to prioritize rupee stability over rapid easing, using FX reserves to smooth disorderly moves while keeping liquidity conditions balanced.
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Equities & bonds: Elevated volatility in equities and wider bond risk premia are possible if foreign outflows continue and growth forecasts are cut.
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Exporters vs. importers: Export-heavy sectors may see partial relief from currency gains, while import-dependent firms face margin pressure unless they hedge or pass on costs.
What to watch next
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RBI operations & guidance: Any signals on tolerance bands for USD/INR and the scale of intervention.
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Tariff specifics: Confirmation of coverage, timelines and exemptions from the U.S., which will determine the ultimate growth impact.
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Portfolio flows: Daily foreign investor activity—continued outflows could test 88.5–89.
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Domestic policy response: Any targeted export support or import duty adjustments to soften the blow.
