This week saw the Indian rupee fall to its lowest-ever level against the US dollar, underscoring growing pressures on the currency. After beginning 2025 at around ₹85.95 to the dollar, it has slipped more than 3% to hit a new record of approximately ₹88.46–₹88.47 per USD.
The depreciation is being driven by multiple, overlapping factors. One key issue is increased trade tariffs imposed by the United States on Indian goods, which reduce export competitiveness. Higher tariffs mean fewer exports, shrinking foreign exchange inflows, and weakening the rupee.
Another major factor has been substantial foreign institutional investor (FII) outflows. Since July 2025, investors have pulled out large sums from Indian markets, spurred by concerns over tariff impacts, earnings growth slowing, and global economic uncertainty. These capital flight dynamics increase demand for US dollars, putting downward pressure on the rupee.
Demand for the US dollar is also rising among importers, particularly oil and gold firms, and among businesses seeking protection against currency risk. With India importing about 90% of its crude oil needs, any drop in the rupee raises the cost of fuel, transportation, and other essentials. These import-driven costs feed into inflation, hitting consumers through higher prices for fuel, goods, travel, and education abroad.
Despite the slide, the Reserve Bank of India has refrained from aggressive intervention in the spot market. Some analysts interpret this as a deliberate, measured depreciation, which could help Indian export sectors become more competitive in international markets and partially offset the headwinds from trade tariffs.
Overall, the rupee’s depreciation reflects a combination of external economic pressures, trade policy shifts, and capital movement. Its weakening has tangible consequences for people’s everyday expenses, especially for imports and services tied to foreign currencies. As the rupee continues to respond to global and domestic triggers, questions remain over how much farther it may fall, and whether policy actions may be required to stabilise it.