The Indian Rupee
- thebrink2028
- Aug 12
- 5 min read
It’s August 2025, and the rupee is teetering at 87.80 against the dollar, a hair’s breadth from its all-time low of 87.95. What’s really driving the rupee’s descent?
A Rupee Under Siege
The rupee’s recent slide is no accident. A toxic cocktail of global and domestic pressures has battered the currency. The dollar index, a gauge of the US dollar’s strength, has clawed back from a low of 96.38 in July 2025 to 98.18, signaling a resurgent greenback. Geopolitical flare-ups, like the India-Pakistan conflict, Operation Sindoor in May, sent the rupee tumbling below 85. A spike in Brent crude oil prices to $78 in June, triggered by the Israel-Iran war, added fuel to the fire. Then came: US President Donald Trump’s announcement of a 25% tariff on Indian imports, followed by an additional 25% levy effective August 27, 2025. These tariffs target India’s $79 billion export market to the US, threatening sectors like textiles, jewelry, and electrical machinery, which account for 36% of exports. Foreign portfolio investors (FPIs) pulled out $2.05 billion from Indian equities in July alone, dragging the Nifty 50 down 3% and the rupee to 87.80 by month-end.
But this is just the surface. The real story lies deeper, in the crevices of global power plays, psychological warfare, and economic maneuvers.
The RBI’s Invisible Hand, and Its Limits
The Reserve Bank of India (RBI) has been the rupee’s silent guardian, using its $623.2 billion forex reserves to cushion the currency’s fall. But the RBI’s interventions are a double-edged sword. By selling dollars to prop up the rupee, the RBI risks depleting reserves at a time when global uncertainties, US tariffs, Middle East tensions, and a potential global slowdown, demand a war chest. Possible that the RBI’s aggressive defense is driven by political pressure to keep the rupee stable before the 2026 state elections. But, this strategy masks a brutal truth: the RBI can’t fight the market forever. If the dollar index breaks above 102, as technical charts suggest, the rupee could drop to 89.50-90, a level that would be bad for India’s trade-dependent economy.
The Tariff Trap
Trump’s tariffs are geopolitical sledgehammer. The US, India’s largest export market, isn’t just flexing muscle; it’s signaling a broader strategy to curb India’s growing economic influence. Sources from Washington reveal that the tariffs are partly a response to India’s push for rupee-based trade settlements, like the Special Rupee Vostro Accounts greenlit in 2025 to bypass dollar dominance. This move, hailed by traders as a step toward financial sovereignty, has rattled the US, which sees it as a challenge to the dollar’s global hegemony. The 50% cumulative tariff could shave 30-50 basis points off India’s 6.5% GDP growth, hitting small exporters hardest, textile weavers in Surat or jewelers in Jaipur.
The FPI Exodus
Foreign investors are selling Indian equities and fleeing in a psychological stampede. Since September 2024, FPIs have yanked out $23.5 billion, driven by fears of a US-led global slowdown and India’s exposure to volatile oil prices. But here’s what’s not in the news: this exodus is fueled by algorithmic trading models programmed to react to sentiment shifts. When Trump’s tariff announcement hit, AI-driven funds dumped Indian assets en masse, amplifying the rupee’s fall. The psychology here is brutal, investors see India as a high-risk bet in a world of rising US inflation (now at 2.67% and climbing) and tightening Fed policy. The result? A self-fulfilling prophecy where fear begets more selling, and the rupee pays the price.
The Oil and Gold Trap
India’s import bill is a ticking time bomb. Crude oil, accounting for 28% of imports, and gold, at 8%, are silently bleeding the rupee. While Brent crude has cooled to $68, any escalation in Middle East tensions could push it back to $95-$100, widening India’s trade deficit from $19.8 billion in December 2024 to potentially $30 billion by Q1 2026. Gold prices, hovering at $2,330 per ounce, are set to climb to $2,475 if US rate cuts falter, as historical data during Fed rate cycles suggests. For import businesses, this means higher costs and squeezed margins, while forex traders face wild volatility.
India’s gold imports are partly driven by unreported demand from rural households, hoarding as a hedge against economic uncertainty, a trend the RBI can’t control.
Jignesh, a textile exporter, whose family business supplies cotton garments to the US. The tariffs have slashed his orders by 40%, forcing him to lay off 20% workers. “We’re not just fighting costs; we’re fighting despair,” he says, his voice cracking. Or consider Dharmendra, a forex trader in Delhi, who lost ₹5 lakh in a single day when the rupee tanked post-tariff news. “It’s like betting on a storm you can’t predict”. These stories echo across India’s businesses, where dreams of growth are colliding with global headwinds.
TheBrink's What Happens Next
The rupee’s future hinges on three scenarios:
Bearish Baseline (60% Probability): The dollar index climbs to 102-108, driven by US inflation hitting 3% and the Fed halting rate cuts. The rupee breaks below 88.20, targeting 89.50-90 by Q1 2026. Tariffs erode India’s export competitiveness, and FPI outflows intensify. The RBI intervenes, but reserves drop below $600 billion, forcing a strategic retreat. Impact: Exporters face 10-15% cost hikes, while importers scramble to hedge forex risks.
Sideways Stasis (30% Probability): The RBI holds the line, keeping the rupee in a 86.90-88.20 range through aggressive dollar sales. Geopolitical tensions ease, and oil prices stabilize at $70. FPI inflows return post-elections, buoyed by India’s bond index inclusion. Impact: Short-term relief for traders, but volatility persists, with sudden spikes possible if US policy shifts.
Bullish Bounce (10% Probability): A US-India trade deal softens tariffs, and the dollar index falls to 96. The rupee rallies to 86.50-85.75, supported by $25 billion in bond inflows. Impact: Exporters regain footing, and forex traders capitalize on short-term gains, but long-term strength depends on global stability.
The most likely path is the bearish baseline, given the dollar’s technical strength and India’s structural vulnerabilities. However, the RBI’s wildcard interventions and potential trade negotiations could tilt the scales. For traders, the key is agility, hedging against a 90+ rupee while watching for RBI signals. For exporters, diversifying markets (think ASEAN or EU) is critical to survive the tariff storm.
Think you can predict the rupee’s next move? Here’s your chance to shine. Send us your forecast for the USDINR rate by December 31, 2025, along with a short rationale, to TheBrink’s email. The closest prediction wins a $50 Amazon voucher.
A Special Thank You
This research was made possible by Palak Sharma, a forex trader from Mumbai, India. Palak, who lost her savings in the 2023 market crash, funded this research to empower traders with the truth behind the rupee’s volatility. Her heartfelt reason: “I want no one else to face the despair I did—knowledge is our shield.”
Her courage inspires us all to seek truth and support vital research.
-Chetan Desai
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