Rupee Below 87 Per Dollar: Causes and Effects
Why in the news
The Indian rupee slid to an all-time low, closing beyond ₹87 against the US dollar. Global shifts, trade tensions and domestic weaknesses drove the fall, raising worries on inflation and investment.
Key facts
- The dollar index rose 1.24% to 109.84 on strong US labour data and higher Treasury yields.
- FIIs withdrew $11 billion since October 2024, shifting money to safer US assets.
- Trade deficit widened to $188 billion, 18% above FY24, with heavy crude oil and import dependence.
- The RBI sold $3.3 billion of forex reserves in seven weeks to smooth volatility.
Causes of the fall
- Stronger dollar: expectations of prolonged high US interest rates; other emerging-market currencies also weakened.
- Trade war: Trump’s fresh tariffs on Canada, Mexico and China. The two North American neighbours export $840 billion of goods to the US; China faced a possible 10% tariff, which weakened the yuan and hit the rupee.
- Capital outflows: sustained FII selling.
- Trade deficit: imbalance worsened by oil and import reliance.
- Policy outlook: markets watched the coming RBI monetary policy review as inflation pressure rose.
| Weaker rupee: downsides | Weaker rupee: upsides |
|---|---|
| Costlier crude and imports raise production costs and inflation | Exports become more attractive, helping IT, pharma and textiles |
| Firms pay more in dollar terms on foreign debt | Remittances gain from better exchange rates and lift consumption |
| Risk of capital flight and lower FDI | – |
| Lower purchasing power slows demand and GDP growth | – |
Way forward
- India is working on policy reforms and trade strategies to lift domestic competitiveness rather than relying on currency depreciation.
Exam angle
- Figures to remember: ₹87/USD, dollar index 109.84, $11 bn FII outflow, $188 bn trade deficit.
- RBI tool used: selling dollars from forex reserves.
- Sectors gaining from weak rupee: IT, pharmaceuticals, textiles.