Despite facing significant external and domestic challenges, the Indian Rupee (INR) is expected to remain within a range of 86.5-87.5/$ in the near-term, as its trajectory is influenced by global market conditions, particularly US tariff policies, and domestic economic factors.
India’s economic growth is anticipated to recover, with improving corporate profitability and subsiding inflation risks, which should provide support for the currency.
Rupee hits record low: Within a span of a month, the rupee has depreciated from ₹84 to ₹86, marking one of its steepest falls ever. What caused this sharp decline in the rupee? What are the major factors behind it? Are other currencies also experiencing a similar fall? ETBFSI explains why.
“Overall, the movement in INR is likely to be determined by how the dollar moves which in turn depends on US tariff rhetorics. In the coming days, US decision on postponing tariffs on Mexico and Canada will also be tested. As of now, status quo is likely to prevail in the global markets as the US President has refrained from going ahead with his decision of universal tariffs which has kept the DXY in check. We expect INR to trade in the range of 86.5-87.5/$ in the near-term,” Bank of Baroda said in a report. .
Escalation in global tariff war and a change in US Fed stance can once again put INR under pressure. RBI’s intervention is likely to be limited going ahead given the tight domestic liquidity situation. We expect INR to trade in the range of 86.5-87.5/$ in the near-term, it said.
The government’s focus on boosting consumption and infrastructure spending, as outlined in the Budget, is expected to further reinforce growth prospects. Additionally, India’s substantial foreign exchange reserves, which stand at $638 billion, offer a buffer against external vulnerabilities, aiding in stabilizing the INR.
Under pressure
The INR has been under pressure recently, especially after hitting a record low of 87.58/$ in February 2025. This was due to a combination of concerns over US tariff policies and a stronger US Dollar. However, the INR has recovered from these lows, partly due to a retreat in the US Dollar Index (DXY).
Despite this recovery, the rupee remains vulnerable to shifts in global dynamics, particularly related to the US Dollar and any potential changes in US tariff policies.
Global market volatility has been pronounced ever since the US elections, with INR seeing fluctuations tied to the uncertainty surrounding US policies.
The rupee depreciated by 2.9% in the period following the elections, but the adoption of a softer tariff stance by the US President brought some stability, with INR only marginally depreciating by 0.3%. In early 2025, the INR saw increased volatility, reaching an annualized daily volatility of 3.9%, and later 5.4%, due to ongoing global uncertainties.
Apart from external factors, domestic economic concerns, such as a subdued economic outlook and weaker equity markets, have also contributed to the rupee’s pressure. The Reserve Bank of India’s (RBI) tight liquidity and policy rate cuts have further raised expectations of INR depreciation. However, investor sentiment has improved as India’s growth outlook shows signs of recovery, helping to stabilize the currency.
