Currency experiences significant drop over six-month period due to concerns over US tariff issues
The escalating trade conflict between India and the United States, culminating in potential tariffs up to 50% on Indian imports by 2025, has significantly affected the Indian rupee (INR) against the US dollar. The rupee depreciated from levels in the mid-80s to nearly 88 INR/USD, with depreciation rates of 2.18% in August 2025 and reaching its weakest point since early 2025 [1][2][3].
In response to this volatility, the Reserve Bank of India (RBI) has actively intervened in the foreign exchange market by selling US dollars to support the rupee. However, these interventions led to a sharp decline in India's foreign exchange reserves, with a drop of $9.3 billion in early August 2025, marking the steepest diminution of the year, and reserves falling to around $688.9 billion [1][5].
At the monetary policy level, the RBI maintained key interest rates unchanged during this period, balancing the need to stimulate growth with the imperative to manage currency stability amid inflationary pressures and trade tensions [4]. The central bank signaled cautious optimism about an amicable resolution of the trade dispute but emphasized that further tariff escalations or retaliatory measures could worsen the economic impact [4].
The trade conflict, specifically the tariffs imposed by Donald Trump, has been a major concern for market participants, as they have the potential to impact the Indian economy. The Indian rupee closed lower for a fifth consecutive week, with dollar bids, primarily from oil importers, pushing the USD/INR higher [6].
Amid this uncertainty, some remain hopeful that a resolution to the trade conflict between India and the U.S. will be achieved in the coming period. Nishit Master, portfolio manager at Axis Securities PMS, expressed optimism about a potential resolution to the trade conflict, stating that there is a high probability that the U.S. will lower tariffs in the coming weeks or months [7]. If the U.S. lowers tariffs, it could lead to a relief rally in the Indian markets, according to Master [7].
However, the potential relief rally in the Indian markets, as mentioned by Master, has not yet occurred. Market participants expect another decline in foreign exchange reserves, and the rupee eased 0.1% for the week [8]. The RBI resumed intervention in the NDF market to manage rupee volatility, and the rupee opened at 87.5600 and reached an intraday high of 87.5350 before closing marginally higher at 87.6550 against the US dollar [8].
In summary, the trade conflict between India and the U.S. has been a significant factor in the recent performance of the Indian markets and the rupee. The escalation of trade tensions, the imposition of tariffs, and the resulting depreciation of the rupee have put pressure on the Indian economy. Despite the RBI's efforts to intervene and maintain stability, the situation remains volatile, and the outlook depends on the resolution of the trade conflict.
[1] "Indian Rupee Hits 2-Year Low as Trade War with US Escalates." Reuters, 2025.
[2] "India's Rupee Hits Record Low Amid Escalating Trade Tensions with US." Bloomberg, 2025.
[3] "India's Rupee Slides to Record Low as US Tariff Threat Looms." Financial Express, 2025.
[4] "RBI Maintains Key Interest Rates as It Balances Growth and Currency Stability." Business Standard, 2025.
[5] "RBI's Foreign Exchange Reserves Fall Steeply Amid Rupee Weakness." The Hindu, 2025.
[6] "Indian Rupee Closes Lower for Fifth Consecutive Week." Moneycontrol, 2025.
[7] "U.S. Tariff Lowering Could Lead to Indian Market Relief Rally, Says Nishit Master." Economic Times, 2025.
[8] "Rupee Eases Slightly Amid Ongoing Trade Conflict." Livemint, 2025.
- The trade conflict between India and the United States has influenced personal-finance, finance, and investment decisions in the Indian business sector due to potential tariffs on Indian imports and the subsequent depreciation of the Indian rupee.
- The depreciation of the Indian rupee, a result of the trade conflict, has also attracted attention in general-news outlets, which are closely monitoring the development of the situation.
- In politics, there is ongoing debate about the appropriate response to the trade conflict, with some emphasizing the importance of resolving the trade dispute for the economic stability of the country.
- Meanwhile, in the field of crime-and-justice, it has been observed that heightened tensions between nations, like India and the United States, can sometimes lead to increased costs for imports, affecting businesses and personal finances, and potentially fueling instances of economic crimes.
