Rupee hits new closing low on US penalties, worst drop since September 2022

The local currency fell 2.09% in July, its steepest monthly loss since September 2022, amid US tariff pressure, portfolio outflows, and global dollar strength

The rupee closed at a new low of 87.60 against the dollar on Thursday, depreciating 0.2 per cent, after US President Donald Trump’s announcement of a 25 per cent tariff on Indian exports to the US from August 1, along with an unspecified penalty for buying oil and arms from Russia.

 

Persistent foreign portfolio outflows also weighed on the local currency, which ended July with a cumulative 2.09 per cent decline, marking its worst monthly fall since September 2022. The previous closing low for the Indian currency was 87.58 per dollar on February 6, 2025. The rupee had touched an all-time low of 87.95 intraday on February 10 this year.

 

 

According to a Business Standard poll, the rupee is expected to trade with heightened volatility with a majority of the respondents seeing the local currency’s target level near 88 per dollar,

 

and support level near 86.50 per dollar, by September 2025.

 

However, the local currency is seen regaining its ground against the greenback by the end of December. Trade tensions continue to weigh on emerging market currencies, dragging the rupee toward fresh lows, and are expected to trade with depreciation bias in the near term, the poll respondents averred.

 

“The tariffs that we see on India have impacted us, the currency is reacting to the relatively higher tariffs imposed on India compared to other countries. This month alone, the rupee has depreciated by around 2.3 per cent, and that’s been a key driving force, along with the appreciation of the dollar index,” said Sameer Narang, head of economics research at ICICI Bank.

 

“Given these trends, we believe pressure will remain on most currencies, pushing them to the weaker side, especially with the added weight of tariffs. For now, the medium-term outlook will depend on how the tariff issue unfolds,” he noted. 

 

A few of the BS Poll respondents believed that though the rupee may weaken in the near term due to tariff-related developments, it could regain ground later, as much of the negative news is already priced in.

 

"By September, I don’t expect further depreciation. We might dip a bit more, but I believe a correction will follow. For December-end, I’d place the rupee somewhere between 87 and 88 per dollar. This is largely based on the dollar’s current trend not due to our domestic fundamentals, but more because of the broader strength in the dollar," said Madan Sabnavis, chief economist at Bank of Baroda.

 

The rupee has depreciated by 2.4 per cent in the current financial year (FY26). On Thursday, it hit a low of 87.75 against the greenback. However, the Reserve Bank of India (RBI) intervened in the foreign exchange market via dollar sales which capped losses during the day (Thursday), market participants said.

 

“The rupee is trading with depreciation bias because of dollar buy by importers and FPIs,” said a dealer at a state-owned bank. “The RBI intervened at 87.75 per dollar. The rupee will continue to weaken with near term resistance seen at 87.90 per dollar,” he added.

The US Federal Reserve’s decision to hold interest rates steady at 4.25 per cent–4.5 per cent in a 9–2 vote also triggered market volatility on Thursday, pushing the dollar and US Treasury yields higher. Two Trump-appointed governors had dissented against the decision and were in favour of a rate cut.

 

On Wednesday, the rupee had settled at 87.42 per dollar, depreciating by 0.7 per cent in what was the sharpest single-day fall in over two and a half months.