Indian Rupee Depreciation in 2025
The Indian Rupee (INR) has experienced a significant depreciation of 4.3% against the U.S. Dollar (USD) in the calendar year 2025, marking it as the worst-performing currency in Asia.
Key Factors Affecting INR
- Comparison with Other Currencies:
- The INR has underperformed compared to currencies such as the Chinese Yuan and the Indonesian Rupiah, but is faring better than structurally weak currencies like the Japanese Yen and Korean Won.
- Impact of Global Dollar Strength:
- The Rupee’s trajectory is increasingly influenced by the strength of the global dollar rather than domestic fundamentals.
- Capital Outflows:
- The INR faces depreciation pressure due to capital outflows, despite a benign current account.
Trade and Economic Influences
- U.S. Tariffs and Trade Deal Uncertainty:
- U.S. tariffs have adversely impacted Indian exports, leading to a record $41.7 billion trade deficit in October 2025.
- Delays in the anticipated trade deal with the U.S. have negatively affected market sentiment.
- Gold Prices:
- The rise in gold prices has spurred investment in gold, increasing the gold import bill significantly.
Market Reactions and Forecast
- Currency Levels:
- The INR touched a low of 89.66 against the USD in November 2025, with potential to further slide to 90 if the trade deal remains unresolved.
- Foreign Investment:
- Foreign investment inflows have been low due to tariff uncertainties and AI-driven market movements in the U.S.
Future Outlook
- Projected Economic Adjustments:
- There is a likelihood of narrowing the tariff gap to align with other Asian peers if the trade deal is finalized, potentially stabilizing the INR around 88 levels.
- External Economic Conditions:
- External shocks like U.S. tariffs and rising precious metal prices continue to impact India’s trade balance.
