Indian Rupee Plummets to New Low

Indian Rupee Hits Historic Low Against Dirham

At the beginning of September 2025, the Indian rupee fell to a new historic low against the United Arab Emirates dirham, following market speculations that the United States might further tighten tariffs against India. A deteriorating investor sentiment, capital outflows, and currency market volatility contributed to the rupee's decline, now standing at 24.0762 against the dirham, surpassing the previous negative record set on September 1.

Background of the Decline

According to traders in the currency market, there has been heightened buying activity by foreign banks, particularly towards the US dollar, in recent days. The main reason is the concern that the United States might impose new tariffs against India, putting significant pressure on Indian exporters and the economy as a whole.

One bank currency trader mentioned that the sudden exchange rate increase (in USD/INR terms) is caused by these tariff fears, but intervention by state banks linked to the Indian central bank prevented even greater exchange rate losses. Such intervention typically occurs when the exchange rate exceeds certain critical levels—currently 88.30 against the dollar—and aims to maintain market stability.

Unbalanced Market Movements

The trading volume was subdued on this day, indicating decreased liquidity in the currency market. This further amplifies the effects of events such as speculative selling or buying. In this case, the movement towards the dollar was dominant, further weakening the rupee.

MUFG, a significant Japanese financial institution, forecasts that the rupee could weaken to the 89 level against the US dollar by the first quarter of 2026 if the current tariffs remain unchanged. However, the forecast suggests that the United States might ease these trade restrictions during 2025, and tariffs could decrease to 25%, potentially relieving pressure on the Indian economy.

Foreign Investors Turning Away

Beyond currency market pressure, a serious issue is that foreign portfolio investors are withdrawing significant amounts of capital from the Indian stock market. So far in September 2025, $1.4 billion has been pulled out, and more than $16 billion has left the market since the beginning of the year. This places substantial pressure on India's capital markets, indirectly affecting the rupee's exchange rate as well.

Several factors contribute to the decline in investor confidence: inflation concerns, unpredictability of fiscal policy, geopolitical risks, and, naturally, trade tensions with the United States. Together, these create a negative environment where foreign players turn toward other regions deemed more stable.

Why Is This Important for UAE Residents?

For UAE residents of Indian origin, the weakening rupee is a double-edged sword. On one hand, the remitted dirham now translates to more rupees, meaning the same amount sent home has greater purchasing power in India. This can positively impact living expenses, property purchases, or even business investments.

On the other hand, excessive weakening indicates potential long-term economic instability, leading many to become more cautious with remittances or wait for market stabilization. Additionally, those earning income in rupees in the UAE (e.g., remote workers or contractors with Indian-based companies) face actual income reductions due to the devaluation.

Central Bank Actions and Expected Responses

The role of the Reserve Bank of India (RBI) is crucial now. They attempt to stabilize the exchange rate through dollar sales from foreign reserves, but this strategy is not sustainable long-term. If international pressure remains persistent or trade restrictions tighten further, the central bank's maneuverability could be constrained.

Raising base interest rates may emerge as another option to strengthen the rupee, though it simultaneously raises domestic lending costs and could hamper economic growth. Therefore, the central bank needs to maintain an extremely delicate balance: stabilizing the currency exchange rate while supporting economic growth.

Summary

The weakening of the Indian rupee against the dirham and the dollar is not merely a technical market movement but also a reflection of global economic processes. Trade wars, investor uncertainties, commercial policies, and central bank interventions collectively shape its exchange rate. For UAE residents, this can represent both opportunities and challenges, depending on their financial strategies.

The coming months will be pivotal concerning the direction of US-India trade relations and the central bank's chosen strategy. One thing is certain: those watching currency markets aren't bored right now.

(Source: Based on forex currency exchange analysis.)