The Indian rupee has continued to decline as trade tensions between the US and India increase. Economists argue that although a declining currency is usually reason for alarm, in this instance, the rupee’s decline might help protect India’s economy from the impact of increased U.S. tariffs.
Indian Rupee Nears Record Low Amid Tariff Pressures
In relation to the US dollar, the Indian rupee dropped to 87.8850 on Tuesday, barely missing its February record low of 87.95. In the absence of alleged intervention by the Reserve Bank of India (RBI), most likely through state-owned banks, foreign exchange dealers say the rupee might have broken the crucial 88-per-dollar level.
Growing trade disputes with the United States are the reason for the rupee’s depreciation, particularly under President Donald Trump’s administration, which has taken a more protectionist trade position. Concern among exporters and officials has been raised by the fact that Indian Rupee faces higher tariffs than many other Asian nations.
Worst-Performing Major Asian Currency in 2025
The Indian rupee is Asia’s worst-performing major currency so far this year when compared to its regional counterparts.
The value of the Indian rupee has decreased by 2.5 percent in 2025, whilst other currencies such as the Taiwanese dollar, South Korean won, Singapore dollar, and Thai baht have increased by 6% to 10% in value relative to the US dollar.
This performance demonstrates how India is under pressure in global markets, which is made worse by trade disputes and unpredictabilities in global monetary policy.
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Trump’s Tariffs Hit India Harder Than Others
In comparison to other Asian exporters, the United States levied greater taxes on Indian goods last week. Trump’s larger strategy to restructure import taxes on goods from about 70 nations, including emerging markets like India, includes the tariff increase.
The U.S. tariffs on Indian exports are currently 5–6% more than those imposed on the majority of other major nations, according to HDFC Bank. Indian exporters are disadvantaged in American markets as a result of this discrepancy.
Nevertheless, as noted by HDFC Bank and other analysts, the rupee’s depreciation might act as a buffer, keeping the prices of Indian goods competitive in spite of the increased tariffs.
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A Falling Rupee Creates a Competitive Edge
According to HDFC Bank, the Indian rupee has lost 3.9% of its value since April 1 in comparison to a basket of Asian currencies that compete with India in export markets.
India has a relative cost advantage as a result of this drop. In other words, even after tariffs are imposed, Indian goods priced in rupees become more affordable for outside consumers, increasing their appeal.
“When U.S. consumers attempt to renegotiate agreements and request cost-sharing of tariff burdens, the depreciation of the rupee may offer a significant buffer,” Sakshi Gupta, HDFC Bank’s principal economist.
Tariff Impact on GDP Growth Could Be Softened
According to economists, currency depreciation might lessen the impact of rising U.S. levies on economic growth.
HDFC Bank estimates that a prolonged 1% decline in the Indian rupee might counteract the 2-3 basis points of GDP loss that the U.S. tariff hikes would otherwise cause.
Even while the negative effects might not be completely eliminated, this provides a partial economic shield, which is crucial as India works to keep its export competitiveness in a volatile global economy.
Maintaining a Competitive Exchange Rate is Key
According to some analysts, the current circumstances make it justified for India to purposefully keep the rupee weak or valued competitively.
It would be beneficial from a structural standpoint if India kept its real effective exchange rate competitive, according to Dhiraj Nim, an ANZ forex and rates strategist.
The nominal exchange rate is modified to take inflation and trade with several partners into account by the real effective exchange rate, or REER. Comparing a currency to its contemporaries, it helps evaluate if it is overpriced or underpriced.
Exports from India have historically been vulnerable to shifts in the REER. Particularly in the face of trade restrictions like tariffs, a moderately depreciated rupee can increase India’s position in the market, encourage exports, and assist manufacturing.
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Current Valuation: Is the Rupee Over or Undervalued?
The real effective exchange rate for the rupee was 100.36 in June, according to the Reserve Bank of India’s July bulletin, indicating that the currency was fairly priced at that time.
The rupee was almost 8% overpriced at the moment, as seen by the REER’s November 108.14 performance last year. It’s likely that the overvaluation harmed exports and exacerbated trade imbalances.
Because it is closer to its long-term average, the current exchange rate level is therefore viewed as more favourable for trade, particularly in light of U.S. protectionism.
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RBI May Tolerate a Weaker Rupee
Economists think the RBI could prefer to accept or even welcome—a weaker rupee for the time being given the low rate of inflation in India and the uncertainty introduced by U.S. trade policies.
The goal of this practical strategy would be to maintain India’s export momentum while lessening the impact of outside shocks like tariff increases.
An exchange rate that is competitive might be a useful economic tool as India gets ready for upcoming talks with the United States and other trading partners.
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The Bigger Picture: Currency Policy in a Turbulent World
India’s currency management comes as international markets are negotiating increased protectionism, shifting interest rates, and volatile inflation.
Global repercussions of Trump’s trade policies have compelled nations to reevaluate their trade, budgetary, and currency policies.
At least temporarily, the declining value of the rupee might present India with more opportunities than problems. Without creating inflation or financial instability, the RBI can assist exporters by letting the currency settle into a market-driven equilibrium and only stepping in to reduce volatility.
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Conclusion
Even though news reports about the Indian rupee hitting all-time lows may seem concerning, analysts say that the currency’s drop may help India withstand the impact of US tariff increases.
The rupee’s fall is already giving Indian exporters a much-needed buffer by somewhat offsetting the cost disadvantages brought on by higher tariffs.
Given the larger framework of international commerce, India’s flexible currency policy—and the central bank’s readiness to allow the rupee to depreciate within reasonable bounds—may turn out to be a tactical advantage during a period of growing protectionism.
The rupee’s performance may prove to be a subtle booster of recovery and resilience as the world observes how India handles foreign economic difficulties.