The Indian rupee hit a historic low of ₹88.62 per U.S. dollar on September 23, 2025. Traders across Asia watched the slide unfold as the currency tumbled despite a broader pullback in the U.S. dollar index. The rupee’s weakness reflects both domestic vulnerabilities and global crosswinds. Higher U.S. visa fees, weaker remittances, and rising tariffs on Indian exports combined to put India’s currency under immense pressure.
This article explains why the rupee collapsed to this record low, what the immediate consequences are for businesses and households, and how policymakers may respond.
The Immediate Trigger: Policy Shocks from the U.S.
Two U.S. policy moves shook India’s economic outlook in recent weeks.
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Higher H-1B visa fees:
The United States sharply raised fees on H-1B visas, which India’s IT industry depends on for sending skilled workers abroad. This policy hit confidence in India’s most consistent source of foreign inflows. With fewer workers likely to migrate and higher costs for firms, expectations of lower dollar remittances grew. That cut into the supply of dollars flowing into India. -
Tariff hikes on Indian exports:
Washington raised tariffs on multiple categories of Indian exports, citing trade imbalances and protectionist measures. This move targeted textiles, steel, and select consumer goods. Exporters face lower revenues, and India’s trade deficit looks set to widen further.
Together, these shocks eroded investor confidence in the rupee, accelerating its decline toward historic lows.
Market Reaction: A Relentless Slide
The rupee’s drop to ₹88.62 per dollar happened in active trading across spot and forward markets. Importers rushed to cover dollar payments, fearing higher rates ahead. Exporters held back on selling dollars, expecting further rupee weakness. This imbalance pushed the spot market lower.
In the non-deliverable forward (NDF) market, contracts priced in more depreciation. Traders bet the rupee could soon test the 89 level if sentiment does not improve. These signals show that the market expects continued weakness rather than a quick rebound.
Why the Dollar Pullback Didn’t Help
Usually, a weaker U.S. dollar index offers relief to emerging market currencies. On the same day the rupee hit a record low, the dollar paused globally as Federal Reserve officials struck a cautious tone. The euro and Swiss franc gained ground, yet the rupee remained under pressure.
This divergence highlights the India-specific risks weighing on the currency. Unlike the eurozone or Switzerland, India faces a unique combination of weaker remittances, higher import bills, and shrinking foreign inflows. Traders saw these domestic factors as stronger than the global dollar trend.
Structural Vulnerabilities Behind the Fall
The rupee’s crash is not only about short-term policy shocks. Structural issues made India’s currency fragile.
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Trade deficit: India continues to import more than it exports, especially crude oil and gold. With global oil prices staying firm, India’s import bill remains heavy.
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Sluggish remittances: India traditionally receives strong foreign remittances. But with visa restrictions and higher fees, inflows slowed. This cut off an important dollar supply.
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Foreign investor hesitation: Portfolio investors remain cautious about India due to political uncertainty and policy unpredictability. Capital inflows, once a stabilizing force, have not matched outflows in recent months.
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Debt servicing costs: Indian corporates with dollar-denominated debt face higher repayment costs, adding pressure to demand more dollars in the market.
Impact on Indian Economy
1. Imported Inflation
A weaker rupee makes imports more expensive. India relies heavily on oil imports, so higher crude prices in rupee terms could drive fuel inflation. This increase passes through to transportation, food, and consumer goods.
2. Corporate Pressure
Firms with foreign debt or heavy import needs face higher costs. Sectors like aviation, automobiles, and chemicals will feel the pinch. Companies may need to pass on costs to consumers, which risks reducing demand.
3. Household Burden
Indians studying abroad or sending money overseas face higher expenses. Tuition, travel, and remittances become more costly, straining household finances.
4. Export Boost – But with Limits
A weaker rupee can help exporters by making Indian goods cheaper abroad. However, tariff hikes from the U.S. and global demand uncertainty limit the extent of this benefit.
Reserve Bank of India’s Role
The Reserve Bank of India (RBI) now faces intense pressure to act. The central bank has multiple tools:
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Direct intervention: RBI can sell dollars from its forex reserves to stabilize the rupee. With reserves above $700 billion, it has room to intervene, though not endlessly.
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Policy guidance: RBI can send signals to markets through statements that it will act against volatility. Such communication often calms speculative moves.
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Interest rate policy: Higher interest rates can attract foreign inflows, though this option risks slowing domestic growth.
Traders expect the RBI to increase its intervention if the rupee breaches the 89 level. However, analysts warn that defending the rupee indefinitely against structural pressures may be unsustainable.
Global Context: Why India Stands Out
Other emerging market currencies also face pressure from a strong dollar and global uncertainty. But the rupee’s slide is sharper because of India-specific shocks. For example:
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The Brazilian real and Mexican peso gained ground against the dollar in recent weeks due to strong commodity exports.
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The Chinese yuan held relatively stable as Beijing used heavy intervention and policy tools to limit depreciation.
India stands out because of weaker export performance and heavier import dependence. The country’s exposure to U.S. trade and visa policies also makes it more vulnerable than other emerging markets.
Outlook: What Comes Next?
Analysts see three possible scenarios in the weeks ahead:
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Continued depreciation: If U.S. tariffs and visa costs cut deeper into inflows, the rupee could test ₹89–90 against the dollar.
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Stabilization with RBI support: Aggressive intervention and policy reassurances could stabilize the rupee around 88 levels in the short term.
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Recovery through inflows: If foreign investors return to Indian equities or remittances rebound, the rupee could recover slightly.
Most traders remain cautious, expecting depreciation pressure to dominate unless major policy changes occur.
Lessons for Investors
The rupee’s record low holds important lessons for currency traders and equity investors alike:
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Domestic shocks matter: Even when global trends favor emerging markets, local risks can overwhelm currencies.
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Policy moves drive volatility: Tariffs and visa fees, though not directly financial policies, create immediate market impacts.
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Diversification is essential: Investors exposed to Indian assets must balance their portfolios with safer assets like U.S. treasuries or gold.
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Timing matters: Forward markets and hedging strategies play a critical role in protecting against sudden swings.
Conclusion
The rupee’s slide to ₹88.62 per U.S. dollar marks a pivotal moment for India’s financial markets. Short-term policy shocks from the U.S. accelerated structural weaknesses already present in India’s trade and capital flows. Businesses, households, and policymakers now face the challenge of adjusting to a weaker currency environment.
For investors, the lesson is clear: forex markets move not only with central bank policies but also with trade, migration, and geopolitical shifts. Staying informed and adaptive remains the only reliable strategy in a world where currencies can hit historic lows overnight.
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