The Indian rupee hit an all-time low against the US dollar, reflecting growing concerns over higher US tariffs on Indian goods and the potential economic fallout. The currency slid past previous lifetime lows, drawing attention to the Reserve Bank of India’s (RBI) role in stabilizing markets. Experts warn that unless trade relations improve, volatility in the rupee may continue, affecting exports, corporate revenues, and foreign investment inflows.
On Monday, September 1, 2025, the rupee fell to 88.33 per US dollar, surpassing the previous session’s record low of 88.3075. Despite the RBI’s intervention on August 29, aimed at supporting the currency, the rupee breached the 88 mark, surprising market participants.
According to VRC Reddy, treasury head at Karur Vysya Bank, “Unless we see some improvement in trade relations between India and the US, we cannot expect any stability in the rupee, and we could see tests of fresh lows frequently.”
Reddy added, “Everything now depends upon the RBI, on how they plan to manage the markets.”
The Reserve Bank of India has a track record of intervening to curb excessive rupee volatility, especially during periods of uncertainty or speculative activity.
While the RBI maintains that it does not target a specific exchange rate, its actions are closely watched by market participants. The central bank’s interventions, even when subtle, can significantly influence short-term rupee dynamics and investor sentiment.
The United States recently raised tariffs on Indian goods by 25%, bringing the total duty burden on Indian exports to 50%.
These higher tariffs are expected to weaken India’s export competitiveness, particularly in sectors such as:
Textiles
Engineering goods
A slowdown in exports could impact corporate revenues and profits, potentially affecting hiring decisions and business investments.
The rising tariffs and resulting uncertainty are causing foreign portfolio investors (FPIs) to reconsider allocations in Indian equities. Over the past three trading sessions, FPIs have withdrawn $2.4 billion from Indian markets, reflecting growing caution amid an uncertain economic outlook.
With exports expected to slow, India’s trade deficit may widen, increasing reliance on capital inflows to maintain external balance. However, inflows have already been weak and may remain under pressure due to the ongoing tariff-related uncertainty.
The rupee’s decline highlights multiple risks for the Indian economy:
Increased import costs, which may contribute to inflation
Pressure on corporate earnings in export-driven sectors
Challenges in maintaining a stable current account balance
Analysts suggest that improving India-US trade relations and strategic intervention by the RBI will be crucial in stabilizing the rupee and maintaining investor confidence.
Conclusion
The Indian rupee’s historic slide past 88 against the US dollar is a direct consequence of rising US tariffs and investor uncertainty. While the RBI continues to monitor and intervene in the currency markets, export competitiveness, capital inflows, and corporate performance remain under pressure. The coming weeks will be critical for market stability and India’s broader economic outlook, especially if trade tensions persist.