Indian Rupee Hits Record Lows in 2025; Worst Annual Drop in 3 Years Amid US Tariff Crisis

The Indian rupee is limping into 2026, and let’s be honest, it’s been a rough ride. As of Wednesday, December 31, 2025, the currency is sitting at 89.86 against the US dollar. It’s officially the rupee’s worst year since 2022.

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The thing is, while other Asian currencies were actually gaining strength this year, the rupee just kept sliding. Or nothing. It even breached the 91 level briefly in mid-December. Those too.

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The 2025 “Pain Points”: Field Notes

It was a capital-flow disaster. Here’s why the rupee didn’t join the regional party:

• The Tariff War: Trump’s 50% “punitive tariffs” on Indian goods—sparked by India’s Russian oil imports—hit exporters hard. Those sectors (textiles, gems, leather) saw a 28.5% drop in US-bound shipments.

• FII Exodus: Foreign investors didn’t just walk away; they ran. A record 18 billion was pulled out of Indian equities this year.

• The 22 Billion Hole: India’s balance of payments slipped into its largest historical deficit between April and November.

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The “New” RBI: Sanjay Malhotra’s Playbook

And here’s the kicker: the RBI isn’t fighting the weakness like they used to. Under the new Governor, Sanjay Malhotra, the central bank has become way more “tolerant.”

• Pivot to Growth: Malhotra slashed interest rates by 125 basis points this year (down to 5.25%) to keep the 8.2% GDP growth humming.

• The “Goldilocks” Year: He’s calling this a rare phase—growth is high, but inflation is practically zero (0.25% in October).

• Undervalued is Good? The rupee is no longer “overvalued.” In fact, its trade-weighted value dropped to 97.5, which actually helps our exporters compete against cheaper Chinese and Vietnamese goods.

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What Happens in 2026?

It’s an ongoing situation where everything hinges on the U.S. Trade Deal. If that pact finally gets signed by the March 2026 deadline, analysts think the rupee could claw back to 88.50. Without it? We’re looking at 90+ being the “new normal.”

Basically, the RBI is letting the currency breathe. They aren’t defending a specific “line in the sand” anymore; they’re just making sure the decline isn’t a total “disorderly spike.

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