When Tariffs Bite and Dollars Roar: Why the Rupee’s Slide Became a Story of Shockwaves
Three months, one currency, and a chorus of global tremors: the Indian rupee has shed 8.3% of its value against the US dollar (INRUSD), a tumble that reads less like a statistic and more like a high-stakes drama.
Act One: The Dollar’s Swagger and Trump’s Hammer
Every currency has its breaking point, and for the rupee, the past quarter has become a masterclass in external pressure. As of early February 2025, the rupee notched an all-time low of 87.1450 to the dollar, and it hasn’t looked back. The spark? A relentless rally in the US dollar—driven by a hawkish Federal Reserve and a USD index jump of 1.24% in early February—coupled with an escalation of tariffs from Washington. President Trump’s 50% tariffs on Indian exports (effective late August) sent shockwaves through India’s export engines: textiles, steel, agriculture, and tech equipment are now staring at price disadvantages of 30-35% in their largest market. Nearly 55% of Indian shipments to the US—worth $87 billion in 2024—are exposed to this new wall.
Act Two: The Central Banker’s Dilemma
India’s central bank, the RBI, has not been a silent spectator. Seven weeks, $3.3 billion in dollar sales: a clear bid to cushion the currency’s fall. Yet, even as reserves swelled to a record $705 billion in September 2024, the rupee remained pinned under the weight of foreign investor exits—FII net sales reached $11 billion in Q3 FY25. The RBI’s monetary ballet, featuring three rate cuts (repo down to 5.50% by June) and a liquidity injection via a 3% CRR, brought relief to borrowers but did little to stem the rupee’s slide. When global capital sniffs volatility, it doesn’t linger, and the rupee’s vulnerability was laid bare for all to see.
The Trade Deficit: The Quiet Erosion
Behind the headlines, India’s trade deficit has quietly become a sinkhole. With a year-to-date deficit of $188 billion and a projected 18% rise over FY24, the rupee’s structural weakness found its amplifier. Robust remittances ($118.7 billion in FY24) and record services exports provided only partial relief. Imported inflation, particularly from energy, lurked in the background—oil price gyrations have long been the rupee’s nemesis, and 2025 was no exception.
Markets on Edge: When Borders Heat Up
Currency markets are often said to be allergic to uncertainty, and the India-Pakistan flashpoint of April-May 2025 did nothing to calm nerves. The Pahalgam attack, subsequent cross-border strikes, and nuclear posturing injected a geopolitical premium into every rupee trade. The result? Increased volatility in both equities (Sensex down 296 points on Feb 3, Nifty below 24,800) and forex, with the rupee serving as the region’s stress barometer.
From Liquidity to Lightning Rod
For all the macro maneuvering, the rupee’s story is ultimately one of confidence. When global investors see a widening fiscal deficit (target 4.5% of GDP for FY26, but rising debt service eats 25% of spending), a trade war with the world’s largest consumer, and the specter of regional instability, they reach for the exit. The rupee, once a symbol of resilience, became the market’s lightning rod.
The Macro Mosaic: Beyond the Headlines
Even as CPI inflation fell to a 7-month low (3.6% in January, 2.07% in August), and GDP growth targets remain a respectable 6.5% for FY26, the currency narrative has been hijacked by forces beyond domestic control. The RBI’s shift from aggressive easing to a neutral policy stance signals awareness: the rupee’s fate, for now, is written not just in New Delhi or Mumbai, but in Washington, Beijing, and Islamabad.
Conclusion: When the Rupee Speaks, the World Listens
The 8.3% slide in INRUSD over three months is not merely a tale of weak fundamentals or fleeting risk-off sentiment. It is a vivid, real-time reflection of how a currency becomes the sum of tariffs, central bank calculus, trade imbalances, and geopolitics. For investors, analysts, and policymakers alike, the lesson is clear: the rupee’s journey is a story of global entanglement, and every shockwave leaves its mark.