Currency: Indian Rupee undergoes significant devaluation versus key international currencies in the year 2025.
September 18, 2025
In a challenging year for global currencies, the Indian rupee has been particularly hard-hit. The rupee is the worst performing Emerging Market (EM) currency so far in 2025, with a fall of about 2.64%.
The depreciation of the rupee against currencies like the Japanese yen, euro, and British pound can be attributed to the 50% bilateral tariffs imposed by the US on India. These tariffs, significantly higher than those imposed on other countries, have impacted India's exports, which account for approximately 20% of the country's goods.
The US is not the only country to have imposed higher export tariffs on India in 2025. Brazil, Switzerland, South Africa, Taiwan, and Malaysia have all imposed tariffs ranging from 40% to 19%. The weaker rupee, however, can make Indian exports like IT services, textiles, and pharmaceuticals more competitive in global markets.
The situation for India is expected to improve once the trade deal is finalized between India and the US. Until then, the rupee has experienced significant depreciation against the euro (18.05%), British pound (12.88%), and Japanese yen (9.87%).
Interestingly, the Hong Kong dollar remained steady in 2025, while the Brazilian real and Chinese yuan posted gains of about 15.96% and 2.68% respectively.
The weaker rupee can also incentivize import substitution in sectors like electronics and chemicals. However, the higher cost of crude and other essential imports keeps inflationary pressures alive.
Foreign portfolio investment inflows into India between April and August 2025 are at $2.6 billion, as against $10.4 billion in the same period of the previous year. This trend is in contrast to the overall emerging market FPI inflows, which have risen to $162 billion in 2025, significantly higher than last year.
Abhishek Bisen, Head - Fixed Income at Kotak Mutual Fund, stated that the rupee's weakness against major currencies is due to the US tariffs. The expectation of a US Fed rate cut had led to further weakening of the USD in the last few days, causing the rupee to gain 16 basis points against the dollar, but lose further 25 bps against the euro in the same time period.
The weakening rupee is a complex issue with far-reaching implications for India's economy. As the trade negotiations between India and the US continue, the future of the rupee remains a topic of keen interest for investors and economists alike.
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