The Indian rupee endured one of its sharpest blows of the year on Friday, slipping to 89.49 against the U.S. dollar—a level never seen before. The fall broke past the previous low of 88.80 and marked the rupee’s steepest single-day slide since May, signalling a market under pressure on multiple fronts.
Despite India’s economy showing solid growth and stock markets hovering near record highs, the currency is facing a very different reality.
Indian Rupee vs US Dollar: Monthly Trend 2025
A Perfect Storm: Outflows, Tariffs, and a Trade Deal in Limbo
The roots of the currency’s decline trace back to late August, when steep U.S. tariffs on Indian exports came into force. Since then:
- trade volumes with the United States have weakened,
- India’s merchandise trade deficit hit a record peak,
- exports to the U.S. fell nearly 9% year-on-year,
- and foreign investors pulled out $16.5 billion from Indian equities.
This combination has eroded foreign currency inflows just when global risk sentiment has turned uncertain. The result is a currency that has been sliding steadily for nearly three months.
The delay and ambiguity around a potential U.S.-India trade deal added another layer of caution. Economists say renewed clarity on the deal may be vital for reviving export orders that have slowed sharply since mid-year.
RBI Steps Back—And the Market Notices
For weeks, traders watched the Reserve Bank of India defend the 88.80 level with consistent intervention. But on Friday, that line of protection appeared to recede.
Large custodial outflows triggered stop-losses, and with the central bank not stepping in early enough, the rupee’s decline accelerated sharply.
Traders believe the RBI instead intervened closer to 89.50—allowing the market to adjust to a new range.
The shift suggests the RBI may be letting the rupee find a more natural level in the face of sustained dollar demand and global uncertainty.
India Faces the Risk of a Rare Two-Year BoP Deficit
Citi’s latest note adds another layer of concern: India may be headed for a $5 billion balance of payments deficit in FY2026. If this projection holds, it would mark the first instance since 1991 where India posts back-to-back years of BoP deficits.
A persistently weak rupee, reduced capital inflows, and sluggish export growth all feed into this possibility.
The rupee is now down 4.5% year-to-date, making it one of Asia’s weakest currencies in 2025.
New Technical Levels Shape the Market’s View
Analysts now see 89.50 as the new resistance zone for USD/INR. With importers rushing to hedge and exporters largely inactive, the rupee faces additional pressure in the near term.
FX strategists caution that sentiment remains skewed against the rupee—markets have been positioned short on INR for weeks, and the RBI appears to be allowing gradual adjustment rather than aggressively defending earlier triggers.
The rupee also touched an all-time low of 12.60 against the offshore Chinese yuan, marking an 8% drop for the year.
What Could Stabilise the Rupee?
According to ANZ’s Dhiraj Nim and other analysts, the most critical element now is the U.S.-India trade agreement.
A favorable deal—especially one that softens tariff burdens—could significantly lift investor sentiment and pull USD/INR back from current highs.
Until then, volatility remains the base case.
