Rupee slips to 87.95 against dollar amid fresh US tariff shock

August 5, 2025 by News Desk

The Indian rupee continued its downward spiral on Tuesday, slipping 29 paise to open at 87.95 against the US dollar, teetering dangerously close to the psychologically critical 88 mark. The decline came in the wake of a sharp escalation in US-India trade tensions, after US President Donald Trump imposed steep new tariffs targeting Indian exports and accused New Delhi of economically aiding Russia through discounted oil deals.

In a significant policy shift, Trump on August 1 signed an executive order titled “Further Modifying The Reciprocal Tariff Rates”, slapping a 25% duty on a wide range of Indian imports. The move, justified by the White House as a response to India’s “unfair trade advantages” and energy cooperation with Moscow, has rattled Indian policymakers and markets alike.

Trump, addressing a press briefing, alleged that India was “profiting from cheap Russian crude” while continuing to “enable Putin’s war economy.” He further warned that the growing Indo-Russian partnership could “drag their dead economies down together,” referring to both countries’ perceived challenge to Western-led sanctions regimes.

India has pushed back strongly, reiterating its position as the world’s fastest-growing major economy and calling the tariffs “unwarranted, unilateral and counterproductive.” New Delhi maintains that its oil imports are based on national interest and comply with international law.

The rupee’s opening at 87.95 marks a fresh test of investor nerves. It matches the currency’s record intra-day low from February 10 this year. This follows a 48-paise drop on Monday, underscoring sustained pressure on the Indian currency amid mounting external headwinds.

At the interbank foreign exchange market, traders cited a combination of geopolitical risks, foreign fund outflows, and policy uncertainty as reasons for the sharp decline. A weakening rupee increases the cost of imports, fuels inflation, squeezes corporate earnings, and often leads to accelerated selloffs by foreign institutional investors (FIIs).

The equity markets mirrored this uncertainty. The BSE Sensex dropped 200.40 points to close at 80,818.32, while the NSE Nifty shed 58.90 points to end at 24,663.80.

FIIs remained net sellers, pulling out ₹2,566.51 crore on Monday alone, reflecting growing risk aversion and concerns over India’s trade outlook with the US.

Crude oil prices also moved marginally, with Brent slipping 0.28% to USD 68.57 per barrel after OPEC+ announced a production hike for September, a move that could further lower prices but add pressure on oil-dependent economies like India.

Meanwhile, the US Dollar Index inched up by 0.04% to 98.81, reflecting modest strengthening of the greenback amid rising demand for safe-haven assets.

All eyes now turn to the Reserve Bank of India, with its Monetary Policy Committee (MPC) midway through a three-day meeting. The decision, to be announced on Wednesday by RBI Governor Sanjay Malhotra, is expected to factor in the currency volatility, trade concerns, and inflationary pressures.

Analysts say the central bank may either hike interest rates or issue a strongly worded statement to reassure markets and stabilize the rupee but options remain limited as growth considerations weigh heavily.

With geopolitical frictions mounting and global trade becoming increasingly politicized, currency watchers expect the rupee to remain volatile in the near term especially as India navigates a high-stakes standoff with its largest trading partner.