Rupee tumbles past 88 against dollar to fresh low on US tariff hit

The rupee slumped to an all-time closing low against the dollar, pressured by US tariffs, equity outflows, and weak Asian peers

The rupee slumped to an all-time low on Friday, depreciating 0.65 per cent against the dollar to settle at 88.21 per dollar, compared with the previous close of 87.63, amid uncertain growth prospects following the 50 per cent tariff imposed by the United States on Indian goods. 

The Indian currency was the worst performing in Asia after the Indonesian rupiah. Its previous all-time closing low was 87.80 on August 5, while intraday it had touched 87.95 in February. On a monthly basis, the rupee weakened 0.66 per cent in August, the steepest fall since May.

 

Although Indian exports to the US make up just over 2 per cent of GDP, the high tariff is expected to hit sectors such as gems & jewellery, leather, and textiles, potentially leading to large-scale layoffs. 

So far this year, the rupee has depreciated 3.02 per cent, making it the worst performer among Asian peers. 

In intraday trade, the rupee hit 88.31 to the dollar, prompting the central bank to intervene and trim losses, dealers said. They noted that while depreciation in the local currency could help boost exports, cushioning some of the impact of tariffs, pressure remains elevated. 

“Outflows from equity markets, (US President) Donald Trump’s tariff pressure on India, month-end oil demand and rupee–yuan dynamics are all creating pressure. The 87.95 level has finally been broken, triggering several stop-losses. Weakness may persist for some time,” said Kunal Sodhani, head of treasury at Shinhan Bank. 

“For USD–INR, 87.20 may now act as a base, with levels open to test 88.90. The RBI continues to hold decent FX reserves and may look to curtail excessive volatility through interim interventions but is unlikely to defend any particular level,” Sodhani added. India’s foreign exchange reserves stand at $691billion, covering 11 months of imports. 

In the past four months, the rupee has fallen around 6 per cent against the Chinese yuan. The yuan–rupee exchange rate is considered crucial for India’s trade competitiveness, as both countries compete directly in US-bound sectors such as textiles, engineering goods and chemicals. A weaker rupee against the yuan makes Indian exports relatively cheaper, partly offsetting the impact of higher US tariffs, traders said. 

Dealers pointed to hedging by importers and equity outflows as other triggers for the sharp depreciation. Foreign investors have pulled more than $1 billion from Indian equities in the past two sessions. 

An FX dealer at a brokerage said: “Importers were waiting for a dip in USD–INR to hedge. Once the rupee breached 87.60, stop-losses were triggered, prompting banks to start buying dollars. This pushed the rate sharply above 88, with the RBI stepping in around 88.25 to curb volatility. The rupee also hit a new low against the Chinese yuan. However, allowing it to depreciate against other emerging market currencies provides some cushion.” 

Across Asia, currencies slipped between 0.2 per cent and 0.7 per cent as markets awaited the release of US personal consumption expenditure data. The US dollar index rose to 98 ahead of the figures. The core PCE index is the Federal Reserve’s preferred inflation gauge, and traders are pricing in an 86 per cent chance of a September rate cut, according to the CME FedWatch tool. 

“Technically, 88 was a key hurdle, and that level has now been broken. This marks a fresh breakout, with the next resistance at 88.55 and support at 87.90. Dollar inflows are currently lacking, leaving demand for the dollar relatively high,” said Dilip Parmar, research analyst at HDFC Securities. 

In the near term, pressure on the rupee may continue, with expectations it could touch 88.5–89. Market participants said the RBI and government may be comfortable with gradual depreciation, though the central bank is expected to step in to manage volatility. 

Meanwhile, yields on government bonds rose. The 10-year benchmark yield climbed to 6.57 per cent from the previous close of 6.53 per cent, touching 6.60 per cent intraday as cut-off yields at the weekly auction came in higher than expected. 

The government on Friday raised ₹32,000 crore, issuing ₹16,000 crore each of 6.68 per cent 2040 and 6.95 per cent 2060 bonds. The cut-off yield for the 2040 paper was set at 6.96 per cent and for the 2060 issue at 7.38 per cent.