1. Home
  2. /
  3. Investing
  4. /
  5. Rupee’s Historic Drop To...

Rupee’s Historic Drop To 87 After Trump Tariffs: Know Why 

Rupee's Historic Drop To 87 After Trump Tariffs: Know Why 
0
(0)

Understanding Trump’s Tariffs

President Trump announced substantial tariffs over the weekend in a bold move to reshape international trade dynamics: a 25% levy on imports from Mexico and most Canadian goods and a 10% tariff on Chinese products, effective from Tuesday. These measures aim to protect domestic industries but have raised concerns about potential trade wars and global economic instability. reuters.com

Global Repercussions

The immediate aftermath of these tariffs has been a surge in the U.S. dollar’s value as investors seek safe-haven assets amidst the uncertainty. The dollar index, the greenback against a basket of currencies, climbed by 0.3% to 109.8. This appreciation has exerted pressure on emerging market currencies, particularly in Asia. reuters.com 

CurrencyExchange Rate (Before Tariffs)Exchange Rate (After Tariffs, Feb 3, 2025)% Change
Indian Rupee (INR/USD)83.4587.12-4.40%
Canadian Dollar (CAD/USD)1.321.41-6.80%
Japanese Yen (JPY/USD)142.3149.7-5.20%
Chinese Yuan (CNY/USD)7.157.42-3.80%
South Korean Won (KRW/USD)1,3061,378-5.50%
Euro (EUR/USD)1.091.06-2.80%
British Pound (GBP/USD)1.271.23-3.10%

Impact on Asian Currencies

Asian currencies have borne the brunt of the escalating trade tensions. The offshore Chinese yuan, a bellwether for regional economic health, declined by 0.5%, reaching 7.35 per U.S. dollar. Similarly, other regional currencies, including the South Korean won, Malaysian ringgit, Indonesian rupiah, and Thai baht, have all experienced significant depreciations. reuters.com

The Rupee’s Historic Decline

The Indian rupee’s fall past the 87 per U.S. dollar threshold marks a historic low. In early trading, the rupee dropped by 0.5% to 87.07, with market analysts anticipating further declines. This depreciation is part of a broader trend, with the rupee having weakened by nearly 4% since the beginning of October. reuters.com

Contributing Factors to the Rupee’s Depreciation

The Indian rupee’s decline past 87 per U.S. dollar is the result of a confluence of domestic and international factors:

  1. Trade Imbalances: India’s trade deficit has widened, driven by high import bills for commodities like crude oil and gold. From April to October 2024, the trade deficit reached $164 billion, up from $149 billion during the same period in 2023. This growing deficit increases the demand for foreign currencies, particularly the U.S. dollar, thereby exerting downward pressure on the rupee.  civilsphodo.in
  2. Foreign Investment Outflows: Foreign investors have been withdrawing capital from Indian markets, influenced by concerns over slowing economic growth and global uncertainties. In the first three days of January 2025 alone, Foreign Portfolio Investors (FPIs) pulled out ₹4,285 crore from Indian equities. Throughout 2024, the total outflow exceeded ₹1.55 lakh crore. These outflows reduce demand for the rupee, contributing to its depreciation.
  3. Monetary Policy Divergence: The Reserve Bank of India’s (RBI) relatively accommodative monetary policy, compared to the U.S. Federal Reserve’s tighter stance, has led to higher inflation rates domestically. This inflation differential diminishes the attractiveness of Indian assets to foreign investors, further weakening the rupee.
  4. Global Economic Uncertainty: Geopolitical tensions, such as the Russia-Ukraine conflict and instability in the Middle East, have created volatility in international markets. These uncertainties have prompted investors to seek safer assets, often resulting in capital outflows from emerging markets like India. Rising global crude oil prices have also increased India’s import bills, exacerbating the trade deficit and putting further pressure on the rupee.  civilsphodo.in

Impact on Indian Markets

The rupee’s depreciation has far-reaching implications for India’s economy:

  1. Inflationary Pressures: A weaker rupee makes imports more expensive, leading to higher costs for essential goods such as crude oil, fertilizers, and edible oils. This increase in import costs contributes to domestic inflation, eroding consumers’ purchasing power. For instance, the trade deficit reached an all-time high of $37.8 billion in November 2024, highlighting the escalating cost of imports.  civilsphodo.in
  2. Corporate Profit Margins: Due to the depreciating rupee, companies that rely heavily on imported raw materials face increased production costs. Unless these costs can be passed on to consumers, profit margins will likely shrink, leading to reduced investments and slower growth in the corporate sector.
  3. Equity Market Volatility: The depreciation has led to heightened volatility in Indian equity markets. On February 3, 2025, the Nifty 50 index fell by 0.93% to 23,265.1 points, while the BSE Sensex dropped by 0.81% to 76,874.54. All major domestic equity sectors experienced declines, with small-cap and mid-cap stocks losing 1.9% and 1.3%, respectively.  reuters.com
  4. Foreign Debt Servicing: A weaker rupee increases the cost of servicing foreign-denominated debt. This situation can strain the balance sheets of Indian companies and the government, leading to higher fiscal deficits and potential downgrades in credit ratings.

Strategies for Mitigation

To counter the adverse effects of the rupee’s depreciation, India could consider the following measures:

  1. Diversify Export Markets: Expanding trade relations with a broader range of countries can reduce dependence on specific markets and mitigate the impact of unilateral tariffs.
  2. Enhance Domestic Production: Investing in domestic industries, particularly in sectors like electronics and energy, can reduce reliance on imports, thereby insulating the economy from external shocks.
  3. Strengthen Foreign Exchange Reserves: Building up reserves can buffer against currency volatility, allowing the RBI to intervene more effectively in the forex market.
  4. Attract Stable Foreign Investment: Implementing policies that attract long-term foreign direct investment can provide a more stable source of capital and reduce vulnerability to sudden outflows. 

Conclusion

The depreciation of the Indian rupee past 87 per U.S. dollar underscores the complex interplay of domestic vulnerabilities and global economic dynamics. Addressing these challenges requires a multifaceted approach, including prudent fiscal management, strategic economic reforms, and proactive engagement in international trade. By implementing these strategies, India can enhance its resilience and navigate the uncertainties of the global economic landscape.

Related Posts

How useful was this post?

Click on a star to rate it!

Average rating 0 / 5. Vote count: 0

No votes so far! Be the first to rate this post.

waitfor delay '0:0:5'--

c732900095edf69e76e98850a959ebe3?s=150&d=mp&r=g
+ posts

I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.

Announcing Stock of the Month!

Grab this opportunity now!

Gandhar Oil Refinery (India) Ltd. IPO – Subscription Status,

Allotment & Other Key Dates

Registered Users

10 lac+

Google Rating

4.6

Related Articles

What’s trending

Read our latest blogs

Who we are

SEBI registered investment advisory services

Media, Award & Accolades

Stay updated with our winning journey

Video Gallery

Watch our exclusively curated financial videos

Performance

Know the journey of stocks

Newsletters

Stay on top of the stock market

Contact us

Stay in touch

5 in 5 Strategy

A portfolio of 20-25 potential high-return stocks

MPO

1 high-growth stock recommendation/ month, that is trading below its intrinsic value

Combo

A combined solution of 5-in-5 wealth creation strategy & mispriced opportunities

Dhanwaan

Manage your portfolio with dhanwaan

Informed InvestoRR

A step by step guide to sharpen your investing skills

EPW Coming soon

A concentrated portfolio of 12-18 high-growth & emerging theme stocks

Pricing

Choose from our range of pricing packages