Currency markets opened under pressure at 88.18, dragged lower by fears over additional US tariffs and sustained foreign investor outflows. The rupee briefly plunged to a fresh intraday low of 88.33 before paring losses to settle at its all-time closing low of 88.10.
Heightening the strain, a further 25 per cent reduction in export tariffs by the United States elevated the total duty on Indian products to 50 per cent, especially hitting sectors such as textiles and engineering already grappling with global headwinds. Investor sentiment deteriorated as foreign portfolio withdrawals reached $2.4 billion over just three trading sessions.
Speculative positioning also exerted downward pressure on the currency. A surge in hedging by importers and speculative short positions reflected growing market concern over the currency’s trajectory. Analysts interpret this as extending previous trends—notably, the breach of the 88‑per‑dollar threshold last week may have emboldened further speculative pressure.
Despite signs of central bank intervention, the rupee’s outlook remains grim. Reuters reported a modest rebound to approximately 88.1950 against the dollar at close, likely as a result of Reserve Bank of India activity amid thin liquidity due to a US holiday. Markets now anticipate only a slight uplift in the next session unless the RBI steps up more aggressive action or trade policies improve.
The depreciation’s ripple effects are extensive. A weaker rupee inflates the cost of imports, from raw materials to essentials, fuelling inflation risks and widening the trade deficit. Corporate debt denominated in foreign currencies becomes costlier to service, denting earnings in export-heavy industries across the economy.
Bond markets are also reacting. India’s 10‑year government bond yield edged up to 6.5678 per cent, with investors awaiting clarity on fiscal reform proposals, including a possible simplification of the GST structure to two slabs—5 per cent and 18 per cent—to ease pressures from trade headwinds.
Macroeconomic trends add further nuance. Despite the Q1 fiscal year GDP posting a stronger-than-expected 7.8 per cent rise, economists warn that growth momentum could slow into the coming quarter absent relief on trade policy. Meanwhile, capital flight persists, keeping the current account and financial markets under sustained scrutiny.
At the same time, domestic equity markets offered some resilience. Gains in equities helped limit the rupee's fall from deeper lows, providing a modest buffer amid turbulent currency markets.
Looking ahead, the rupee’s path will hinge on several pivotal factors: the evolution of US-India trade talks; whether the RBI is prepared to deploy more assertive measures—including liquidity support or market guidance—to stem volatility; and broader shifts in global demand, commodity prices, and investor risk appetite.