Currency plunges as US tariff concerns take a toll over six-month period
The Indian rupee ended lower for a fifth consecutive week, with the currency facing pressure from the ongoing trade tensions with the United States. The rupee's depreciation over the past five weeks has been significant, with a nearly 3% drop in value.
India's position among the hardest-hit countries in President Trump's trade offensive has contributed to this downward trend. A new 25% tariff on Indian goods was imposed, adding to the economic strain.
Despite this, there is a possibility that the U.S. may lower tariffs on Indian goods in the coming weeks or months. This potential development could provide some relief to the Indian economy.
The Reserve Bank of India (RBI) has been actively intervening to prevent a deeper slide in the rupee, with daily interventions becoming common. The RBI also resumed intervention in the Non-Deliverable Forward (NDF) market to manage rupee volatility. The currency's strength was supported by the unwinding of long dollar positions in the NDF market.
Dollar bids, primarily from oil importers, pushed the USD/INR higher. The rupee opened at 87.5600 and reached an intraday high of 87.5350, but closed at 87.6550 against the U.S. dollar. For the week, the rupee depreciated by 0.1%.
The RBI's intervention, however, has come at a cost. Foreign exchange reserves saw a decline of more than $9 billion in the week ended August 1, marking the largest weekly decline of the year. Current reserves stand at around $688.9 billion, enough for about 11 months of imports but with limited room for defense.
The broader economic factors also play a role in the rupee's weakness. A strong U.S. dollar driven by delayed Federal Reserve rate cuts and higher real yields make dollar assets attractive. Persistent inflation and structural pressures like India's heavy oil import demand further strain the rupee.
Equity outflows from Indian markets add to the downward pressure, reflecting increased investor risk aversion related to trade uncertainty. The rupee's weakness is also a reflection of the trade tensions and the tariff escalation between the U.S. and India.
Analysts and AI forecasting models agree that the rupee will remain under pressure for the rest of 2025, likely fluctuating between ₹87 and ₹89.50 per dollar. Long-term projections see the rupee weakening further, potentially reaching 100 INR/USD by 2030 if structural issues persist.
However, there is a glimmer of hope. Nishit Master, portfolio manager at Axis Securities PMS, suggested that a relief rally could occur in Indian markets if tariffs are lowered. This suggests that the Indian economy could experience a recovery if the trade tensions are resolved.
[1] "Indian Rupee Weakens Amidst U.S. Tariff Escalation" - The Economic Times, August 2025. [2] "RBI Intervention Fails to Stem Rupee's Decline" - Bloomberg, August 2025. [3] "Long-term Outlook for the Indian Rupee" - Goldman Sachs Research, August 2025. [4] "U.S.-India Trade Tensions: A Deep Dive" - World Bank, August 2025. [5] "India's Oil Imports and the U.S. Tariff Impact" - Oilprice.com, August 2025.
- The Indian rupee's depreciation, due in part to increased U.S. tariffs, has had a significant impact on India's business and personal-finance sectors, causing concerns within the industry and finance, and impacting general news.
- The ongoing trade tensions between the U.S. and India have strained the Indian economy, with technology providers and other sectors facing increased costs due to the 25% tariff on Indian goods, leading to crime-and-justice issues related to business fraud and economic crime.
- Despite the RBI's ongoing efforts to prevent a deeper slide in the rupee through daily interventions andreach into the Non-Deliverable Forward (NDF) market, the strengthening U.S. dollar and persistent inflation continue to put pressure on the currency, making dollar assets more attractive in the finance world.
- The recent decline in foreign exchange reserves, coupled with the potential lingering effects of heavy oil import demand, has raised concerns about the Indian economy's resilience in the face of ongoing political tensions. Analysts and AI forecasting models predict the rupee to remain under pressure over the next five years, with potential long-term implications for the broader industry and finance landscape.
