Rupee Falls Below 87 for the First Time, Trade War Fears Rise
New Delhi, February 3, 2025 – The Indian rupee (INR) hit an all-time low of ₹87.14 per US dollar on Monday, marking its steepest depreciation in history. The decline comes as a direct response to new tariffs imposed by US President Donald Trump on imports from Canada, Mexico, and China.
The impact of these tariffs has been felt across Asian currencies and stock markets, with investors growing increasingly concerned about a potential full-scale trade war between the US and its trading partners.
Historic Drop: Rupee’s Decline and Market Reaction
The Indian rupee fell 0.6% from Friday’s closing rate of ₹86.62, breaching the 87-mark against the US dollar for the first time. Over the past four months, the rupee has depreciated by nearly 4%, reflecting growing concerns about global economic uncertainty and widening trade deficits.
Key Highlights of the Rupee’s Decline
| Aspect | Details |
|---|---|
| Rupee’s Lowest Point | ₹87.14 per US dollar |
| Drop Since October 2024 | 4% depreciation |
| Major Trigger | Trump’s tariffs on Canada, Mexico, and China |
| Impact on Asian Currencies | Depreciation in Chinese yuan, Japanese yen, and Korean won |
| Stock Market Impact | Indian indices fell sharply as FII outflows increased |
Trump’s Tariffs: What Triggered the Decline?
US President Donald Trump signed three executive orders over the weekend, imposing 25% tariffs on imports from Mexico and Canada and 10% tariffs on goods from China. The move has led to a surge in the value of the US dollar, making it stronger against other global currencies, including the Indian rupee.
Key Impacts of Trump’s Tariffs:
- Stronger US Dollar: The US dollar index (which measures the dollar’s strength against six major global currencies) surged by 0.3% to 109.8, making imports costlier for India and other Asian countries.
- Pressure on Asian Currencies: The Chinese yuan, which often moves in the same direction as the Indian rupee, also saw a sharp decline, adding pressure to regional forex markets.
- Stock Market Reaction: The tariffs triggered a sell-off in global equity markets, including India’s Sensex and Nifty 50, as Foreign Institutional Investors (FIIs) pulled out capital.
Expert Reactions: What Analysts Say
Anshul Chandak, Head of Treasury at RBL Bank, Said
"The macroeconomic indicators look weak for the rupee, and we expect it to remain under pressure for the next 6–8 weeks. The strengthening of the US dollar and concerns over capital outflows will continue to impact India’s forex reserves and currency stability."
Global brokerage firm Morgan Stanley also warned of an escalating trade war:
"Risks are skewed towards further escalation. Asia will be the most impacted region due to its high trade dependence on the US. Several economies run significant trade surpluses with the US, and they are likely to suffer the most."
Impact on India: Rising Import Costs and Market Volatility
The rupee’s depreciation has direct consequences for the Indian economy, particularly in areas such as import costs, inflation, and foreign investments.
How the Falling Rupee Affects India:
- Higher Import Costs – India imports over 80% of its crude oil. A weaker rupee means higher fuel prices, leading to higher inflation in essential goods.
- Rising Inflation – As the cost of imports increases, consumer prices for electronics, raw materials, and food items are expected to rise.
- Foreign Investment Outflows – A weaker rupee reduces returns for foreign investors, prompting them to withdraw their investments from Indian equity and bond markets.
- Trade Deficit Widening – The falling rupee makes exports cheaper but increases India’s overall trade deficit due to costly imports.
Indian Stock Markets Also Decline
The negative impact of the tariffs was reflected in India’s stock markets, as both Sensex and Nifty 50 saw a sharp decline despite the positive sentiment from the Union Budget 2025.
Market Performance on Monday:
| Index | Performance |
|---|---|
| BSE Sensex | Down 482 points |
| NSE Nifty 50 | Dropped by 151 points |
| Bank Nifty | Declined 2.3% |
| Foreign Investment (FII) | Outflow of ₹2,100 crore |
Analysts believe that if the trade war escalates, FII outflows will intensify, leading to more market volatility.
Government’s Response and Possible Measures
The Indian government is closely monitoring the situation and may take corrective measures to stabilize the rupee. Some possible interventions include:
- Forex Reserve Utilization – The Reserve Bank of India (RBI) may intervene in the forex market to prevent excessive volatility.
- Encouraging FDI Inflows – The government could introduce policies to attract more Foreign Direct Investment (FDI) to counteract FII outflows.
- Trade Policy Adjustments – India may explore bilateral trade agreements with other nations to mitigate the impact of US tariffs.
What Lies Ahead for the Rupee?
With uncertainty surrounding global trade relations, the Indian rupee is expected to remain under pressure in the coming weeks. However, some factors could provide stability:
- Favorable Domestic Growth – India’s strong GDP growth rate and stable domestic demand could support the rupee in the long run.
- RBI’s Policy Interventions – The Reserve Bank of India is expected to take measures to manage liquidity and stabilize the currency.
- Improved Export Performance – A weaker rupee could boost Indian exports, particularly in the IT, pharmaceuticals, and textile sectors.
Rupee’s Fall Calls for Cautious Monitoring
The Indian rupee’s depreciation to a record low of ₹87.14 per US dollar is a major economic event that reflects global trade tensions, a strong US dollar, and investor concerns. The impact of Trump’s tariffs has rattled global markets, including India’s currency and stock exchanges.
While short-term volatility is expected, economic experts suggest that government policies, foreign exchange interventions, and India’s strong economic fundamentals will be key in stabilizing the rupee over time.