Indian Rupee near all-time low: causes, consequences and outlook

The Indian rupee is in a critical situation at the beginning of September 2025. With an exchange rate of around 88 rupees per US dollar, it has reached a near all-time low and is thus under the strongest pressure of all major Asian currencies this year.

Causes of devaluation pressure
Several factors are weighing on the currency. First and foremost are the ongoing US tariffs on Asian exports , which are severely impacting India's foreign trade. These burdens are causing investors to direct less capital into Indian markets. At the same time, the expectation of continued tight US monetary policy is driving capital out of the dollar zone. This "safe haven" effect is exacerbating the rupee's weakness.

Consequences for the economy and consumers
The devaluation has significant consequences for the domestic economy. India imports a substantial portion of its energy in the form of crude oil and gas – both commodities invoiced in US dollars. With each further depreciation of the rupee, import costs rise, exacerbating inflationary tendencies . Electronics and industrial intermediates also become more expensive, impacting both consumer prices and production costs. While exporters benefit in the short term from a weaker currency, this potential is limited by weakening global demand.

Central Bank Reactions
The Reserve Bank of India (RBI) faces a classic dilemma. To stabilize the rupee, it would need to raise interest rates and build confidence through foreign exchange market interventions. At the same time, however, higher interest rates would dampen economic growth, which is heavily dependent on favorable financing conditions. According to market observers, the RBI has already intervened selectively, but the effectiveness of such measures remains limited in light of global factors.

outlook
Whether the rupee can halt its downward trend depends heavily on external developments. Should the US Federal Reserve signal an interest rate cut, the pressure on the dollar could ease. Similarly, a relaxation of international trade tensions could slow the capital outflow from India. In the long term, the crucial factor remains whether India can regain the confidence of international investors through structural reforms, investment incentives, and sound fiscal policy.

The rupee thus functions not only as a currency but also as an indicator of confidence in Indian economic policy . Its current all-time low makes it clear that this confidence is under pressure – and that New Delhi, as well as the RBI, are facing significant economic policy challenges.