The Indian rupee reached a new low against the US dollar on Friday, dropping to 87.9650, amid investor concerns over the steep tariffs imposed by the US on Indian goods. Washington’s decision to introduce an additional 25% tariff, doubling the duties on Indian exports to 50%, sent shockwaves through the market, contributing to the rupee’s downward spiral.
However, the currency’s troubles don’t end with the dollar. Against the offshore Chinese yuan, the rupee slumped further, hitting 12.3307, marking a 1.2% decline for the week and 1.6% for the month. Over the past four months, the rupee has fallen nearly 6% versus the yuan, raising concerns over the broader implications for India’s trade dynamics.
Economists have pointed to the disparate treatment of Indian and Chinese goods under the new US tariff structure. While Indian exports face a harsh 50% duty, Chinese goods are only subjected to a 30% tariff, with higher duties still on hold. Gaura Sen Gupta, economist at IDFC FIRST Bank, told Reuters, “The rupee’s drop versus the yuan reflects the tariff gap, which directly affects sectors competing with China in US markets such as textiles, engineering goods, and chemicals.”
Interestingly, the weaker rupee against the yuan could offer some relief to Indian exporters. A depreciating rupee could make Indian goods relatively cheaper compared to Chinese products, potentially giving Indian exports a competitive edge in global markets. Moreover, a weaker rupee could help narrow India’s growing trade deficit with China.
The Reserve Bank of India (RBI) is closely monitoring the yuan-rupee exchange rate, which has become an increasingly important factor in India’s economic strategy. FX strategist Dhiraj Nim of ANZ Bank noted that the RBI may welcome the rupee’s decline against the yuan, as it does not represent a significant drop against the US dollar. “The RBI should anyway be welcoming a weaker rupee per se that it is relative to the yuan, all the better,” he said.
While the rupee has weakened by over 1% against the yuan this week, it has only fallen by 0.3% against the dollar, maintaining a level above the psychologically significant 88 per dollar threshold. Bankers suggest that the RBI’s interventions have played a crucial role in limiting the extent of depreciation.
The weakening rupee adds another layer of complexity to India’s economic situation, which is already grappling with the fallout from the Trump administration’s tariffs. Chris Wood, Global Head of Equity Strategy at Jefferies, stated that the tariffs could cost India between $55–60 billion, hitting sectors that are highly employment-intensive, such as textiles, footwear, jewellery, and gems.
