The rupee declined to 88.33 to the U.S. dollar, dipping past the 88.3075 lifetime low hit in the previous session. The Reserve Bank of India stepped in on Friday to support the rupee, yet letting it breach 88 caught most market participants off guard.
“Unless we see some improvement in trade relations between India and the U.S., we cannot expect any stability in the rupee, and we could see test of fresh lows frequently,” said VRC Reddy, treasury head at Karur Vysya Bank.
“Everything now depends upon the RBI, on how they plan to manage the markets,” Reddy said.
The RBI has a track record of stepping in to curb excessive rupee volatility, particularly during periods of heightened uncertainty or rampant speculative activity.
While the RBI has repeatedly emphasized that it does not target a specific exchange rate, its actions are closely monitored and can significantly influence short-term rupee dynamics.HEFTY US TARIFFSThe U.S. last week raised tariffs on Indian products by 25%, bringing the country’s total duty burden to 50%.Higher tariffs are expected to dent India’s export competitiveness, particularly in sectors such as textiles and engineering goods. A slowdown in exports could weigh on corporate revenues and profits, potentially affecting hiring and investment decisions.
With the tariffs increasing uncertainty over corporate earnings and India’s broader growth outlook, foreign portfolio investors may reconsider allocations to Indian equities.
Over the past three sessions, foreign investors pulled $2.4 billion from Indian equities.
With exports expected to slow, the trade deficit is likely to widen, putting pressure on the current account. The country may have to rely more on capital inflows, which have already been weak and could remain under pressure amid the uncertain backdrop.
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