Introduction

The Indian Rupee has depreciated 4.3% against the US Dollar in 2025, making it Asia’s worst-performing currency. Analysts warn that the INR may slide to ₹90 per USD if the India-US trade deal does not materialise soon. The rupee’s movement is now driven more by global dollar strength than by domestic fundamentals. Persistent capital outflows, a rising trade deficit, U.S. tariffs, and a surge in gold imports have intensified pressure on the domestic currency.

Why This Matters: Rupee Hits Asia’s Lowest Position

The rupee’s sharp 4.3% calendar-year depreciation marks one of the steepest declines among Asian currencies. This contrasts sharply with the appreciation seen in much of the Asian currency complex, led by the Chinese Yuan through strong intervention by China’s central bank. The situation is aggravated by India’s record $41.7 billion trade deficit, U.S. tariff shocks, and a gold price spike that spurred a 200% rise in ETF investments. The worsening outlook raises concerns of the rupee breaching ₹90 per USD, a level not previously approached in recent years.

Drivers Behind the Rupee’s Depreciation

1. Global Dollar Strength: Dollar appreciation of 3.6% over two months increased pressure on most Asian currencies, including the INR.
2. External Shocks:
   1. U.S. tariffs on Indian goods directly added stress.
   2. High precious metal prices increased import bills.
3. Capital Outflows: The current account remains “benign”, but the depreciation is driven by capital flight, not trade fundamentals.
4. Comparative Weakness: INR weakened more than IDR (2.9%) and PHP (1.3%), marking a distinct underperformance.

Rupee’s Position Relative to Asian Peers

1. Underperformance vs. China and Indonesia: Specialists note that while Indonesian Rupiah and Chinese Yuan have depreciated, INR weakened further.
2. Better Than Structurally Weak Majors: INR still fares better than the Japanese Yen and Korean Won, which face domestic policy constraints.
3. Asian Currency Complex Trend: Most Asian currencies appreciated, driven by Chinese intervention through PBOC/SAFE signalling.

Market Movements and Recent Lows

1. New Lows Recorded: Rupee touched 88.8 per USD on 21 November 2025, breaking earlier RBI-supported levels.
2. Intraday Weakness: Fell further to 89.66, signalling intense currency-market stress.
3. Partial Recovery: Rupee recovered to 89.22 by Tuesday, though still significantly weaker on a monthly basis.

Trade Deficit and Macro Pressures Intensifying Rupee Weakness

1. Record Trade Deficit: October witnessed a $41.7 billion merchandise trade deficit triggered by tariff hikes.
2. Gold Import Surge:
   1. Gold imports spiked to $14.72 billion in October.
   2. Gold ETF demand rose by 200% due to soaring global prices.
3. Twin External Shocks: Tariffs + gold price rise combine with geopolitical uncertainty to pressure the currency.

Impact of the U.S. Tariffs and Policy Changes

1. 50% Tariff Imposed by U.S.: Direct impact on India’s export competitiveness, worsening the trade deficit.
2. Cumulative Effect on Rupee: Tariffs + gold imports + dollar strength + capital outflows create a compounding depreciation effect.
3. Forward Outlook: Without a trade deal with the U.S., the rupee may breach ₹90 per USD.

Conclusion

The rupee’s position as Asia’s worst-performing currency signals deeper stresses in India’s external sector. The depreciation stems from global dollar dominance, tariff shocks, capital outflows, and rising import bills. While partial recoveries occur, the broader trajectory depends heavily on the India-US trade negotiations and management of external vulnerabilities. Ensuring macroeconomic stability will require coordinated steps in trade policy, forex management, and domestic economic resilience.

PYQ Relevance

[UPSC 2018] How would the recent phenomena of protectionism and currency manipulations in world trade affect macroeconomic stability of India?

Linkage: It is directly linked to GS-3: External Sector, as it examines how tariffs and currency moves affect India’s macroeconomic stability. It is relevant for understanding exchange-rate volatility, CAD pressures, and global protectionist trends.

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