Indian Rupee Faces Challenges in 2025 Amid Trade Uncertainties

Weak Performance in Asian Currency Market

The Indian rupee has emerged as the worst performing currency in Asia during 2025, primarily due to the ongoing trade uncertainties between India and the United States. The stagnation in trade negotiations coupled with significant foreign investor outflows has put considerable pressure on the rupee.

Economic Factors Contributing to Rupee's Decline

1. Trade tensions between India and the US have been a major factor. India's high tariffs, averaging around 50%, have affected its exports to the US, leading to a decline in trade performance.
2. Foreign portfolio outflows have further weakened the rupee. The uncertainty surrounding trade agreements has triggered a cautious stance among foreign investors.
3. Impact on exports: India's exports to the US dropped by nearly 12% in September and 8.5% in October, though they recovered by 22.6% in November.

Expert Analysis and Future Projections

Analysts from Nomura and S&P Global Market Intelligence have expressed concerns about the rupee's future performance. They believe that the currency's weakness may persist unless there is a significant breakthrough in the trade negotiations between India and the US.

Hanna Luchnikava-Schorsch, Head of Asia-Pacific Economics at S&P Global Market Intelligence, noted that the rupee is currently undervalued and expects a correction once there is more clarity on the trade agreement. S&P Global forecasts a potential resolution within the next six months.

Sonal Varma, Chief India and Asia (ex-Japan) Economist at Nomura, highlighted that prolonged trade uncertainties could lead to a loss of momentum in global supply chain shifts. Companies oriented towards the US market might divert investments to other countries due to sustained high tariffs.

Potential Risks and Implications

1. Inflationary pressures: A weaker rupee could lead to higher import costs and inflation.
2. Investment diversion: Persistent trade tensions might cause companies to reconsider their investment plans in India.
3. Economic stability: Continued foreign fund outflows could impact overall economic stability.