On Wednesday the Indian rupee did something it had threatened to do for months. It slipped quietly past the rate of 90 to the US dollar.
For currency traders in Mumbai, this was a breach of a psychological fortress. For the broader Indian economy, it was a signal that the protective walls erected by the Reserve Bank of India (RBI) are no longer impervious to the rising tide of global protectionism and capital flight. The slide past 90 is not merely a number on a screen. It is a symptom of a deeper malaise in the external sector of the world’s fastest-growing major economy.
Also read: What the Rupee at 90 per Dollar Means for You
The immediate trigger for this depreciation is as blunt as it is effective: tariffs. The imposition of duties up to 50 percent on Indian goods by the United States has crimped exports to India’s largest market. This protectionist strike has done more than just dampen order books in textile hubs like Tiruppur or engineering centers in Pune.
It has fundamentally altered the calculus for holding the rupee. If the country’s primary engine of foreign exchange earnings is sputtering under the weight of trade barriers, the currency naturally loses its sheen. The market is pricing in a structural shift in India’s terms of trade, one where access to the American consumer comes at a much steeper price.
Compounding this trade shock is a relentless exodus of foreign capital. International investors have sold Indian stocks with vigour, pulling out nearly $17 billion this year. The logic is brutal but rational. Indian equities have long commanded a “scarcity premium” for their growth potential. However, when that growth is threatened by trade wars and the currency is depreciating, the returns for a dollar-based investor evaporate.
The exits have been exacerbated by a private equity sector seeking liquidity, leading to net foreign direct investment turning negative in recent months. Money is leaving India not in a trickle, but in a steady stream, seeking safer harbours where policy predictability is higher.
This dual blow has left the rupee exposed as Asia’s worst-performing currency of 2025, down roughly 5 percent for the year. It is a stark reversal for a currency that was once touted for its stability amidst emerging market chaos. The comparison with regional peers is unflattering. While other Asian currencies have bent under the pressure of a strong dollar, the rupee has buckled.
This underperformance suggests that the rot is specific to India’s current predicament rather than a general aversion to emerging markets. The uncertainty surrounding a potential trade deal with Washington acts as a persistent drag, keeping risk premiums high and the currency low.
The central bank’s response to this crisis has been a study in pragmatic resignation. The RBI has long preferred a stable exchange rate to suppress imported inflation. Yet, defending a specific level like 89 or 90 requires the burning of foreign exchange reserves. Having spent tens of billions of dollars in previous months to smooth volatility, the central bank appears to have made a strategic calculation. Fighting the fundamental forces of trade tariffs and capital outflows is a losing battle. Instead, they have seemingly chosen to manage the decline rather than halt it. The fall is orderly, but it is undeniably a fall.
The consequences of a sub-90 rupee will ripple through the economy with a lag. India imports more than 80 percent of its crude oil. A weaker currency inevitably translates to higher fuel prices, which then seep into the cost of vegetables, transport, and manufactured goods. This imported inflation complicates the job of monetary policy committees already wary of price pressures.
Furthermore, Indian corporations that gorged on cheap dollar debt during the years of easy money now face a ballooning repayment burden. The cost of servicing external debt has just jumped, squeezing margins and potentially delaying capital expenditure cycles.
There is a grim irony in the timing. India’s domestic growth remains robust, yet its currency tells a story of external vulnerability. The slide may well be a negotiation tactic in the grand bargaining of geopolitics—a weaker currency could theoretically offset some tariff pain by making exports cheaper—but that is a dangerous game. For now, the rupee is adrift in choppy waters, and the anchor of 90 has been cut loose. The question is no longer if it will fall further, but where the new floor lies in a world where trade wars are the new normal.
