Rupee may breach ₹88 against dollar as tariff pressure hits currency; here's how it can affect Indian economy

The Indian rupee and US dollar trade was muted on Thursday, 28 August; however, it reached a record high of ₹87.65.

On 27 August, the additional 25% U.S. tariffs came into force, increasing total duties on certain items to 50%. This extra tariff has put pressure on the rupee and posed a major challenge to the fourth largest economy.

Besides the tariff blow, there is more to it; the equity market witnessed FII outflows of ₹6,516 crore on Tuesday this week.

It is worth noting that the rupee has been under pressure since May 2025, when Trump’s tariff threats unsettled the market. This has led to a decline in the rupee over the past three to four months.

If we also examine the charts, over the past month the rate fluctuated between ₹86.8 and ₹87.9, with some minor ups and downs. However, there was no significant shift during this period compared to previous months. Currently, the dollar has experienced a slight increase in the rupee, approximately .98% (or around ₹0.85) compared with a month earlier.  This indicates that the rupee has weakened slightly against the dollar over the past month.

Effect of declining Rupee

According to some reports, the new tariff applied by Trump could affect around 65% or more of India’s exports to the United States. In value terms, this could amount to approximately ₹60 billion across major sectors such as gems and jewellery, textiles, diamonds, furniture, and others.

According to Amit Pabari, MD and CEO of CrForex, “This may reduce India’s dominance of labour-insensitive markets, which may further lead to job loss in regions that mainly depend on exports. In turn, this could weaken India’s position in global supply chains. While tariffs will affect performance, the rupee pressure will also increase.”

Silver lining

With the rupee under pressure, exporters may also see their margins shrink. However, Riya Singh, Research Analyst – Currency and Commodities, Emkay Global Financial Services Ltd, says the picture is not one-sided.  

“The weaker currency and quick government measures can create small windows of relief. For instance, the duty drawback on gold jewellery exports has been raised from about ₹4,468 to ₹5,234 per 10 grams. While this is not a game-changer, but for an industry that sends nearly $10 billion worth of jewellery to the U.S., the higher refund on import duties is a badly needed cushion.”

She further said that the changes in GST, which are expected in early September, will further boost liquidity, giving exporters some breathing space at a time when order books look vulnerable.

Meanwhile, competitors could gain ground as Indian goods become less competitive in the U.S. However, opportunities still exist in non-tariff markets from ASEAN to Africa where the weaker rupee can be used to achieve more attractive pricing. The currency is expected to remain under pressure in the near term.

Several reports suggest India will aim to expand its presence in more than 40 countries that collectively import textiles and clothing worth around $600 billion.

Pabari said that the strategy opens the door for exporters to get a large share of global demand, reducing dependency on the U.S. and gradually strengthening the textile sector. “Over a period of time, this could help improve India's trade balance and support the rupee.”

Meanwhile, it is also not to be forgotten that development in the U.S. has also taken a political turn. Federal Reserve Governor Lisa Cook is preparing to sue Trump over her removal. On the other hand, Trump claims she got dismissed for providing wrong information on a mortgage application.

They have raised a serious concern about the Fed’s role. Markets are looking closely to see who replaces her eventually. “This way, political influence over the Fed could erode investors' confidence in the U.S assets,” said Pabari.

Outlook

Experts believe the rupee remains under pressure after slipping past ₹87. "The ₹87.80–₹88 zone is critical, as the Reserve Bank of India has often stepped in around this level to prevent sharper weakness. On the other hand, support is seen at ₹87.40, and if the rupee holds here, a short-term recovery could follow, giving the currency some breathing room," said Pabari.

Adding to it, Singh said, “Exporters who diversify their destinations and move up the value chain still have room to benefit from rupee depreciation. Government incentives, from higher duty drawbacks to GST tweaks, provide additional cushions. USDINR looks on the way to test levels of ₹88 – ₹88.25 as long as it trades above ₹87.65.”