How did India’s rupee become Asia’s worst currency in 2025?

The Indian Rupee is currently the worst performing currency in Asia in 2025. It is on track for its biggest annual decline since 2022 – the year in which Russia’s invasion of Ukraine caused oil prices to exceed $100 a barrel, dealing a major blow to India, which imports about 90% of its crude.

However, this year’s weakness has been caused by higher US tariffs on Indian exports and flight of foreign investors from the local stock market.

To stabilize the rupee, the Reserve Bank of India has sold more than $30 billion of foreign currency assets since late July, according to Bloomberg Economics estimates, and in doing so managed to avert a new low in mid-October.

But on November 21, the rupee fell to 89.4812 against the US dollar, indicating that the central bank had stopped defending the currency. Analysts suspect that the RBI wants to conserve its reserves in case of a delay in trade talks with the US.

The currency is now at a turning point. Possible improvement in US-India trade relations and lower tariff rates may ease pressure on the currency. But if this does not happen, RBI may be forced to provide further support to the rupee.

Why did the rupee weaken so much this year?

The rupee fell for the first time in January before making modest gains against the dollar in March and April. In early May, the currency was trading at its strongest level at 83.7538 per dollar. This was around the same time when investors were betting that India would be one of the first countries to sign a trade deal with the US. Expectations of lower tariffs on Indian exports boosted optimism that foreign capital will flow into the country as companies look for manufacturing bases outside China.

The situation changed in July, when President Donald Trump announced plans to impose higher-than-expected tariffs and threatened to punish India for buying Russian energy and arms. The levy dashed New Delhi’s hopes of preferential treatment on its Asian peers, and the rupee suffered its worst monthly loss since 2022. In August, the US set a 50% tariff on most Indian exports – the highest in all of Asia – which included a “secondary” 25% penalty tariff on India’s trade with Russia. Rupee fell to record low, crossing 88 per dollar.

In September, the currency weakened further after reports that President Trump had urged European countries to impose penalty tariffs related to Russia on Indian imports and that the US planned to raise the fee for its high-skilled H-1B visas – the majority of which go to Indian-origin workers – from a few hundred dollars to $100,000.

A sharp foreign outflow from Indian equities due to US tariffs, higher stock valuations and concerns about economic growth and sluggish corporate earnings have put additional pressure on the rupee. As of November 25, foreign investors had pulled out about $16.3 billion from Indian stocks this year, coming close to record outflows in 2022.

Traders have speculated that the RBI has been intervening periodically to stabilize the currency this year, notably in February and again in October. But on November 21, the rupee suddenly fell to an all-time low, suggesting that on that occasion the central bank decided not to act.

What is the intervention strategy of the central bank?

The central bank governor has repeatedly said that the RBI intervenes only when it needs to control excessive volatility rather than targeting a specific value relative to the dollar. It usually does this by selling US dollars from its foreign exchange reserves – which helps curb the dollar’s appreciation and support the rupee – or through offshore derivatives contracts in which it commits to sell dollars at a predetermined price at a future date. Those reserves now stand at about $693 billion – the largest in the world and enough to cover about 11 months of imports.

Why is the condition of rupee bad compared to other currencies?

The overall depreciation of the rupee this year is not a big surprise; The currency has lost value every year since 2018. In fact, RBI Governor Sanjay Malhotra downplayed the rupee’s weakness in an interview on November 24, saying it was to be expected given the inflation gap between India and advanced economies.

One reason is that those countries face very low US tariffs on their exports. India’s economy – although largely driven by its domestic market – has been particularly badly hit because the US is its largest export market.

Another pressure on the rupee is India’s persistent current account deficit, which means it imports more than it exports. India must buy foreign currency – usually US dollars – to pay for those imports, weakening demand for the rupee. In contrast, Taiwan, Malaysia, Thailand and South Korea are all running current account surpluses, meaning they export more than they import, earning foreign currency from their sales abroad.

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