The rupee felt the ripple effect of the escalating tariff war between the US and other countries (Canada, Mexico and China), breaching the crucial 87 to the US dollar mark, to close at an all-time low on Monday.
The forex market saw one of the biggest gap-up openings (of 42 paise) in the post-Covid period, with the rupee opening for trade at 87.03 per dollar against previous close of 86.61.
The Indian unit sank to an intraday low of 87.28. However, it recovered to close at 87.1850, down about 58 paise over the previous close, as the central bank is believed to have intervened in the market via state-owned banks through dollar sales.
Trump tariff
All global currencies are feeling the heat of a strong US dollar as the new US Administration under President Donald Trump is implementing a 25 per cent additional tariff on imports from Canada and Mexico and a 10 per cent additional tariff on imports from China. Energy resources from Canada will have a lower 10 per cent tariff. The countries at the receiving end of the tariffs have threatened to do a tit-for-tat.
V Rama Chandra Reddy, Head – Treasury, Karur Vysya Bank, observed that since global currencies are depreciating against the dollar in the backdrop of the current scenario of tariff wars triggered by the new US Administration, the RBI too seems to be comfortable allowing the Rupee to move in lockstep.
In the first nine months of calendar year 2024, the rupee depreciated by 66 paise against the dollar. But between October 2024 (when foreign portfolio investors started selling in the Indian capital markets) and till date, the Indian unit has depreciated by 328 paise (or 3.91 per cent) per dollar.
The rupee has weakened about 2.77 per cent (or about 236 paise) from December 11, 2024, when Sanjay Malhotra took charge as RBI Governor, till date.
Market experts say the weakening of the rupee indicates the central bank’s new approach to managing the currency, allowing it to move in tandem with other global currencies, including Chinese yuan (which has weakened against USD). Moreover, despite dollar sales and consequent decline in reserves, the Rupee has continued to depreciate over the last few months.