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The Indian rupee has slipped to an all-time low of 88.36 against the US dollar, marking a significant moment in the currency’s trajectory and raising fresh concerns about macroeconomic stability. The depreciation, recorded on September 6, 2025, surpassed the previous record of 88.33 set just days earlier, driven by a combination of global trade tensions, foreign portfolio investor withdrawals, and strong dollar demand from foreign banks.
While the Reserve Bank of India is believed to have intervened to cap further losses, the rupee’s slide reflects persistent vulnerabilities in India’s external sector and the broader impact of geopolitical developments on emerging market currencies.
Key Highlights From The Currency Movement
- The rupee fell to 88.36 against the US dollar, breaching its previous record low of 88.33
- The decline was triggered by fears of steep US tariffs on Indian exports and sustained foreign investor outflows
- RBI likely intervened through state-run banks to stabilize the exchange rate above 88.30
- The currency was last quoted at 88.2750, down 0.1 percent on the day
- MUFG forecasts further weakening to 89 by Q1 2026 if tariff pressures persist
Drivers Behind The Depreciation
The rupee’s record low is attributed to a confluence of domestic and global factors:
1. US tariff concerns: Speculation around new tariff measures targeting Indian goods has rattled currency markets, prompting defensive dollar buying
2. Foreign portfolio investor exits: Net sales of $1.4 billion in September have pushed total outflows past $16 billion for the year, weakening rupee demand
3. Strong dollar momentum: The US dollar index remains elevated amid hawkish Federal Reserve signals and safe-haven flows
4. Muted merchant flows: Limited corporate dollar inflows have skewed market activity toward dollar accumulation
Traders noted that foreign banks were active buyers of dollars, amplifying the rupee’s decline. State-run banks reportedly stepped in near the 88.30 mark, likely on behalf of the RBI, to prevent a sharper fall.
Impact On Markets And Economy
The rupee’s depreciation has immediate and long-term implications for India’s economy:
- Import costs: Higher exchange rates will inflate the cost of crude oil, electronics, and other essential imports
- Inflation risk: Imported inflation could pressure retail prices, complicating RBI’s monetary policy stance
- Corporate earnings: Companies with dollar-denominated debt or import-heavy operations may face margin compression
- Export competitiveness: While a weaker rupee can boost exports, tariff barriers may offset potential gains
Equity markets remained largely stable, with the Nifty 50 and Sensex showing muted reactions. However, currency-sensitive sectors such as aviation, oil marketing, and consumer durables may see increased volatility.
Policy Response And RBI Strategy
The Reserve Bank of India has not issued an official statement but is widely believed to have intervened through dollar-selling operations. The central bank’s approach has typically focused on smoothing volatility rather than defending specific levels.
Analysts expect the RBI to maintain a watchful stance, balancing currency stability with inflation control and capital flow management. Any escalation in US-India trade tensions could prompt more aggressive intervention or policy recalibration.
Forward Outlook
MUFG has projected that the rupee could weaken further to 89 by early 2026 if tariff pressures remain unresolved. The forecast assumes that current tariffs will be reduced to 25 percent next year, offering some relief to exporters.
In the near term, traders will monitor US-India trade negotiations, RBI’s forex reserves position, and global risk sentiment. Corporate hedging activity is also expected to rise as firms seek to mitigate currency exposure.
Sources: News18, Economic Times, Financial Express
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