Rupee Plunges to New Record Low: Four Factors

The Indian rupee slumped past 88 per US dollar on Friday, August 29, hitting a fresh lifetime low. While several global and domestic factors are at play, the sharp move was largely driven by the US decision to impose steep tariffs.

The currency closed at 88.1950 per dollar on the day, losing 0.65% in its sharpest single-day fall in nearly three months. It touched a record low of 88.3075 earlier in the session, before suspected intervention by the Reserve Bank of India helped limit further losses.

Here are the four major reasons for the rupee's decline today:

1. US tariffs trigger risk-off sentiment

The biggest factor behind the rupee’s fall is Washington’s new round of tariffs on Indian imports, which became effective from Wednesday, August

27, 2025.

The 50% tariffs imposed on India are likely to shave off 60-80 basis points from India's GDP growth if they stay in place for a year, economists have said, potentially adding pressure on an already slowing economy. Among the hardest hit sectors in the Indian industry due to the new tariffs will be textiles, gems and jewellery, chemical, and seafood.

"The rupee hit an all-time low of 88.20 as pressure mounted after the US implemented tariffs on Indian products, raising concerns over a widening fiscal

deficit. While the upcoming GST Council decision is expected to lend some support, markets are awaiting clarity on the final GST changes before taking a decisive view. Sentiment remains weak, and the rupee is expected to trade within a range of 87.65-88.45," Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities said.

 2. Weakness against dollar ahead of US inflation report

The rupee slipped against the dollar on Friday (August 29), with the greenback finding support ahead of a key US

inflation report. This comes even as the dollar is on track for a 2% drop in August against major currencies, as investors bet the Federal Reserve will cut rates next month.

"This is not a bad thing though because the trade weighted real effective exchange rate is now at the lowest level in two years and should help boost competitiveness," analysts at JP Morgan said in a note.

 3. Foreign outflows from Indian assets

Foreign institutional investors (FIIs) have been consistently selling Indian stocks

this week, accelerating after the tariff announcement. Every sale translates into dollar demand, as FIIs repatriate money, dragging the rupee further.

So far in 2025, FIIs have offloaded more than ₹1.60 lakh crore from Indian equities, driving their ownership in the market to the lowest level in 15 years.

4. Weakness in line with Asian currencies

The rupee also tracked declines in Asian peers, which slipped between 0.2% and 0.7% ahead of the release of US personal consumption expenditures (PCE) data later in the day. The

core PCE index — the Federal Reserve’s preferred inflation gauge — is expected to provide crucial cues on the timing and scale of potential rate cuts this year.

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