The Indian rupee is under renewed pressure after the U.S. proposed steep tariffs, including a 100% duty on branded pharmaceutical imports. This move threatens to dent one of India’s strongest export sectors. Analysts caution that the rupee could slip beyond the 89 per dollar mark, raising concerns over costlier imports and higher borrowing costs. Market watchers expect the Reserve Bank of India (RBI) to intervene through forex measures or liquidity tools to prevent further volatility.
What’s Driving Rupee Weakness Now
The sharp decline in the rupee isn’t just a sudden move — it reflects a mix of external shocks and domestic vulnerabilities. At the heart of the pressure is Washington’s latest tariff announcement, coupled with a stronger U.S. dollar that’s squeezing emerging market currencies like the rupee.
U.S. Tariff Threats on Indian Exports
The 100% duty proposal on branded and pharmaceutical imports from India has set alarm bells ringing. The pharma sector is one of India’s biggest export earners, and any restrictions directly cut into foreign exchange inflows. Analysts warn that if these tariffs are implemented, India’s current account deficit could widen, putting further downward pressure on the rupee.
This move isn’t just about pharma — it signals a tougher U.S. trade stance that could spill into textiles, IT services, and other export segments. For investors and corporates, the uncertainty translates into currency volatility and higher hedging costs.
Also read: India’s Forex Reserves Hit $700B – What It Means for Economic Stability
Dollar Strength & Global Factors
Beyond tariffs, the global dollar rally is another key driver of rupee weakness. Investors are flocking to the dollar as a safe haven amid global trade tensions, stronger U.S. growth numbers, and expectations of tighter Federal Reserve policy.
For India, this means two things:
- Capital outflows: Foreign portfolio investors (FPIs) often pull money from emerging markets when U.S. yields rise, weakening the rupee.
- Higher import bills: Since commodities like crude oil are priced in dollars, a stronger greenback makes imports more expensive, pushing inflationary risks higher.
Combined, these factors explain why the rupee is struggling to hold ground and why market watchers expect RBI to intervene if the slide accelerates past the 89 mark.
How RBI Can Respond
The Reserve Bank of India (RBI) is no stranger to currency volatility. With the rupee sliding under the weight of U.S. tariff threats, investors and businesses are watching closely to see how the central bank will act. RBI’s toolkit combines direct market intervention with broader monetary measures, giving it flexibility to stabilize the rupee without derailing growth.
Forex Intervention Options
One of RBI’s most immediate levers is direct intervention in the forex market. By selling U.S. dollars from its record foreign exchange reserves — currently among the world’s highest — RBI can absorb excess dollar demand and slow the rupee’s fall.
- Spot market intervention: Selling dollars directly to stabilize the currency.
- Forward contracts & swaps: Managing expectations by reducing pressure on importers and corporates hedging against future volatility.
- Liquidity smoothing: Ensuring exporters and importers can manage their positions without sharp price swings.
While such interventions rarely reverse long-term trends, they buy time, calm panic, and prevent speculative attacks on the rupee.
Policy Rate / Liquidity Tools
Beyond forex operations, RBI can use monetary policy adjustments to influence currency stability:
- Policy rates: A calibrated hike in the repo rate could make Indian assets more attractive to global investors, supporting the rupee. However, this comes with trade-offs — higher borrowing costs for businesses and households.
- Liquidity management: Through open market operations (OMOs), cash reserve ratio (CRR) tweaks, or term repos, RBI can absorb excess liquidity and curb speculative dollar demand.
- Communication strategy: Clear signals from the central bank about its readiness to act often deter panic selling, reducing the need for drastic measures.
In short, RBI’s response will likely be a balancing act — intervening enough to prevent a disorderly fall in the rupee, while keeping domestic growth and inflation priorities in check.
Impact on Trade, Imports & Borrowing
The ripple effect of U.S. tariff threats on Indian exports goes far beyond the forex market. A weaker rupee immediately changes the equation for both importers and exporters, while also influencing the borrowing costs for companies and households.
Costlier Imports (Fuel, Pharma Components)
When the rupee slides against the dollar, imports become more expensive. India, as one of the world’s largest crude oil importers, feels this pain almost instantly at the pump. A falling rupee means higher fuel bills for companies, transportation costs for logistics, and eventually inflated retail prices for consumers.
The pharmaceutical sector is under double pressure. On one hand, U.S. tariffs threaten India’s branded drug exports. On the other, many pharma companies rely heavily on imported active pharmaceutical ingredients (APIs) from global markets, often priced in dollars. This double whammy could tighten profit margins and push up medicine prices domestically.
Exporters vs Importers — Winners & Losers
Not everyone loses when the rupee weakens. Export-oriented sectors such as IT services, textiles, and select pharma companies with strong overseas demand may see higher revenues in rupee terms, as dollar inflows fetch more local currency. For them, a softer rupee acts as a natural tailwind.
Importers, however, find themselves on the losing side. Companies dependent on foreign raw materials, technology imports, or global supply chains face squeezed margins. This includes automobile manufacturers, electronics producers, and energy-intensive industries.
For borrowers, the story is mixed. Corporates with foreign currency debt face higher repayment burdens as the rupee depreciates. However, if the RBI steps in effectively, domestic borrowing costs could be stabilized, offering some relief to local businesses.
Also read: PhonePe Gets RBI Nod as Payment Aggregator: What It Means for Users & Merchants
What You Should Do
When the rupee comes under pressure from tariff shocks and global volatility, businesses and borrowers in India need to act strategically. While the RBI may intervene, individual risk management plays a key role in limiting exposure to currency swings and interest rate shifts.
Hedging Strategies for Importers
Importers are the first to feel the heat when the rupee weakens. A sharper dollar makes fuel, raw materials, and pharma components costlier, squeezing margins. To protect against this:
- Forward Contracts: Lock in exchange rates for future payments to avoid uncertainty in dollar costs.
- Currency Options: Use call options to secure the right (but not the obligation) to buy dollars at a predetermined rate.
- Natural Hedging: Match dollar inflows (like export receivables) with dollar outflows to balance exposure.
- Short-Term Borrowing in Foreign Currency: Where feasible, borrow abroad at lower rates to settle imports, reducing immediate rupee pressure.
A disciplined hedging policy ensures that businesses don’t panic-buy dollars at the worst possible time.
For Borrowers: Floating vs Fixed Rate Preferences
Borrowers also face ripple effects when the rupee weakens and the RBI considers intervention. Interest rate expectations matter:
- Floating Rate Loans:
- Advantage: If the RBI intervenes via forex reserves without hiking rates, floating loans remain cheaper.
- Risk: If inflation spikes and RBI hikes repo rates, EMIs rise.
- Fixed Rate Loans:
- Advantage: Provide stability and predictability, especially in uncertain times when inflation is a concern.
- Risk: If RBI holds rates steady, borrowers may end up paying more than floating rate counterparts.
Practical Tip: For short-term borrowing, floating rates may still be beneficial in 2025 given RBI’s cautious stance. For long-term commitments, a mix of fixed and floating exposure can offer balance.
Frequently Asked Questions
1. Why is the Indian rupee under pressure in 2025?
The rupee is weakening due to U.S. tariff threats on Indian exports, dollar strength in global markets, and investor uncertainty.
2. How do Trump’s tariff proposals affect India?
Proposed U.S. tariffs, including 100% duties on branded and pharma goods, may hit India’s pharmaceutical exports and widen the trade deficit.
3. What role does RBI play in stabilizing the rupee?
The RBI can intervene in the forex market, adjust interest rates, and use liquidity tools to prevent sharp rupee depreciation.
4. Could the rupee fall below the 89 mark against the dollar?
Analysts warn that if tariffs proceed and the dollar remains strong, the rupee may dip past 89, prompting RBI action.
5. How do tariffs impact Indian importers and borrowers?
Tariffs make imports like fuel and pharma components costlier. Borrowers may face higher repayment costs if the rupee weakens.
6. What does rupee depreciation mean for exporters?
Exporters could gain short-term benefits from a weaker rupee, as their products become more competitive abroad, but tariffs may offset gains.
7. How do currency fluctuations affect everyday Indians?
A weaker rupee raises the cost of imported goods, foreign education, overseas travel, and loans tied to global benchmarks.
8. Can RBI interventions alone protect the rupee?
While RBI can slow volatility, external factors like U.S. policy, global oil prices, and investor sentiment also drive currency movements.
9. What strategies can importers use to hedge rupee risk?
Importers can use forward contracts, options, and currency swaps to lock in exchange rates and reduce risk from rupee swings.
10. Should borrowers prefer fixed or floating rates in this environment?
Borrowers may benefit from fixed rates during volatility, while floating rates could be risky if RBI raises interest rates to defend the rupee.