A long slide or a Trump trade-war twist! How India’s Rupee ended up as Asia’s worst currency this year – Explained

If India’s currency could speak, 2025 would probably be the year it asked for a vacation. A dollar that once cost less than four rupees at independence now buys more than 89, and is flirting with the dreaded 90 mark.“When the rupee slides it does affect the broader economy,” said Economist Arun Kumar, retired professor at JNU before stating that the rupee’s slide this year is tied to the combination of trade tensions, falling foreign investment, and rising uncertainty. This is the story of how the rupee slipped, what pushed it further down, and what economists believe may come next.

India’s economic journey

The USD–INR relationship has been a window into India’s economic journey. Before independence, the rupee’s value largely mirrored British economic conditions, as India was under colonial rule.The pound was pegged to gold, the dollar was pegged to gold, and the rupee was pegged to the pound, putting India indirectly on the Bretton Woods chain.While debates continue over whether one US dollar equalled roughly Rs 4.16 in 1947, one thing is clear: the rupee then held far greater purchasing power than it does today.Decades later, the picture could not be more different.In 2025, India’s rupee has fallen by 4.3% so far, making it Asia’s worst-performing currency this year. Earlier on Friday, it slipped to 89.42 per dollar in early trade, driven by strong dollar demand from importers and banks.At the interbank market, it opened at 89.19 and quickly fell to 89.40, continuing a downturn that accelerated after November 21, 2025, the day it cracked a record low. A delay in the India-US trade deal, relentless foreign investor selling, and what traders described as an unusually absent RBI pushed the currency into deeper trouble.According to Bloomberg, some traders believe that if the US-India trade deal remains stuck, the rupee may break past 90 soon. The fall is stark enough to make this India’s biggest annual currency decline since 2022, when the Russia-Ukraine war sent global oil prices soaring past $100 a barrel, and a major shock for India, which imports nearly 90% of its crude.But this year’s slide has been driven by something far more political: US tariffs, penalties linked to Russia, and a massive foreign investor exodus.Talking to TOI Economist Arun Kumar, argued that both external policy and domestic factors are equally to blame for the declining currency. According to Kumar, “Currency’s value with international currency depends on many factors, it can be trade, expectations and what the people feel will happen in the future. All the factors external and internal are involved.”He said that what’s happening globally is also very important because “our currency is not only pegged to the dollar but with respect to other currencies and if other currencies are shifting around then it might affect our trade and situation also.”He added that domestic uncertainty is amplifying the rupee’s troubles. Despite strong GDP numbers, concerns about unemployment, weak private investment and low demand have created anxiety about the broader economic outlook.Kumar explained that the rupee’s current slide is closely tied to India’s trade tensions with the US. “The rupee sliding at this point of time is very specific to this period, where there is a trade problem with the US and it is affecting our current account deficit and our capital movements because the net foreign direct investment has turned negative now. Earlier it was down by 90%, so that means that our trade deficit and current account deficit which was financed by capital movements is not getting financed to the same extent as earlier,” Kumar said.“That’s why the reserves get effected and once the reserves get effected then people expect that the rupee will slide and when the rupee begins sliding than the people take out more capital,” he added.

The steady erosion — month by month

The year began mildly. The rupee slipped in January, then clawed back some strength in March and April. By early May, it touched 83.7538 per dollar, its strongest this year. Optimism was high then, driven by expectations that India would bag an early trade deal with the US. Lower tariffs on Indian goods were expected to boost foreign investment and support the currency.But July changed everything.US President Donald Trump unveiled tariff plans far harsher than what markets had expected. He also warned of penalising India for buying Moscow crude, accusing New Delhi of “financing” Russia’s invasion of Ukraine. These measures shattered New Delhi’s hopes of preferential treatment among Asian peers, and the rupee suffered its worst monthly decline since 2022.Then came August.Washington slapped a 50% tariff on most Indian exports, which was the highest in Asia, along with an additional “secondary” 25% penalty tariff targeting India’s trade ties with Russia. The rupee collapsed to a string of fresh lows, falling beyond Rs 88.September brought no relief. Reports suggested that President Trump had urged European nations to impose similar Russia-related penalty tariffs on India. Another shockwave came when the US proposed raising its H-1B visa fee, mostly used by Indian tech workers, to a staggering $100,000, from a few hundred dollars and the rupee sank further.But the heaviest blow came not from policy, but from markets.According to a Bloomberg report, by late November, foreign investors had pulled out nearly $16.3 billion, approaching the record sell-off of 2022. High US tariffs, frothy stock valuations, concerns about earnings, and questions about domestic growth all pushed investors to sell India. This selling spree created intense demand for dollars and reduced demand for rupees, amplifying the currency’s fall.

The RBI’s tightrope walk

Traders believe the RBI stepped in on several occasions through 2025, especially in February and October. But on November 21, when the rupee suddenly crashed past 89, it was evident that the central bank did not intervene.The RBI had long defended the 88.80 level. When that floor broke, short-covering triggered a steep drop, sending the currency tumbling through 89 in a matter of hours.The Reserve Bank of India has maintained that it intervenes in the currency market only to curb excessive volatility. Bloomberg estimates suggest that since July alone, the central bank has offloaded more than $30 billion to prevent the rupee from sliding to fresh record lows.India’s foreign-exchange reserves, now around $693 billion, remain among the world’s largest and can cover roughly 11 months of imports.Yet analysts say the RBI under its new governor, appointed in December 2024 — is adopting a more restrained approach, stepping in only when absolutely necessary. Some economists argue that defending the rupee near 88.8 may not be sustainable amid weak portfolio inflows, a widening trade gap and ongoing reserve drawdowns.

Should the RBI intervene more aggressively?

Arun Kumar believes that RBI has been always taking a view of the currency and has been intervening. “The RBI has been always taking a view of the currency and has been intervening. And if the currency is to decline it should not be that sudden, it should be gradual… rapid movements lead to more speculated activities,” he said.He further suggested that in the current trade environment, RBI may even prefer a slightly weaker rupee, saying that, “RBI has always been intervening and especially now as our treaty with the US is gonna be affected with a very high tariff. So to increase the trade from India and exports from India, to help the exporters, it might want the rupee to go down, and if the rupee goes down then the trade is affected positively in terms of exports being better. Imports may also decline as a result of that and the inflation may rise because the imported goods become more expensive but at this point the RBI is probably looking to help the exporters and allow the rupee to slide further.”The rupee has lost value every year since 2018, and this year is no exception.But what stands out in 2025 is that many other Asian currencies including the Taiwan Dollar, Thai Baht and Malaysian Ringgit, have strengthened, even as the US dollar has softened, but India is the outlier.Countries like Thailand, Malaysia and Taiwan are not subject to the kind of harsh US tariffs that India is currently facing. India’s export-reliant sectors have been hit far harder. Fears of a falling US dollar have prompted exporters elsewhere in Asia to convert more of their dollar earnings into local currencies, strengthening them. India has not benefited from this trend because its exporters remain under tariff pressure.

How does weak rupee affect the broader economy?

A weaker rupee makes Indian goods cheaper for the rest of the world, which helps exporters stay competitive, especially important now, as India faces new tariff pressures and works to secure trade deals like the one with the UK. It also benefits families in India who receive money from relatives working abroad, because each dollar sent home converts into more rupees.But the downside is significant. A weak rupee makes imports costlier, including essentials like crude oil, fertilizers, and electronics, pushing overall prices higher.Arun Kumar also explained the mixed impact of the declining India currency. He said, “When the rupee slides it does affect the broader economy. Because on one hand exports are held while imports are reduced… therefore, the sliding rupee would help somewhat positively in the growth rate of the economy but the inflation would rise, which will be negative for the economy.”“Also what happens is that within the economy the demand for production etc would change. If the exports are more, then the demand increases in the economy. When imports becomes less even than the demand in the economy increases. Therefore, the sliding rupee would help somewhat positively in the growth rate of the economy but the inflation would rise, which will be negative for the economy,” Kumar said.However, he further notes that a gradual decline in the rupee is more manageable, as it prevents inflation from rising too sharply while still supporting export demand.