Another day, another fall for the rupee. As US President Donald Trump ramped up the trade war, imposing new tariffs on China, Canada and Mexico, the rupee hit a new low on Monday, slipping past the key level of 87 against the US Dollar.
The Indian rupee has been under pressure for some time now, amid the US Dollar gaining strength against most currencies. Ever since Republican Donald Trump returned as the president of the United States, global uncertainties have increased amid fears of a renewed trade war. After Trump slapped tariffs on Mexico and Canada over the weekend, the two neighbours responded with their own measures and China, too, has vowed retaliation after it was also hit with fresh tariffs.
The escalating trade tensions roiled global equity markets on Monday, and bourses from Asia to Europe traded in the red. Foreign investors have been aggressively selling from emerging markets, including India, amid the uncertainty.
In January 2025 alone, foreign portfolio investors sold over Rs 78,000 crore from India's equity market. As global uncertainties rise, the preference for dollar assets goes up. That is strengthening the greenback and pressuring the rupee. Other major Asian currencies like the Korean won, Malaysian ringgit, Thai baht and Indonesian rupiah were also under pressure.
"Rupee weakened further, breaching 87.18, down by 0.57 paise or 0.67 per cent, as Trump's aggressive tariff policies triggered a stronger dollar rally. The US administration imposed a 25 per cent tariff on Canada and Mexico and a 10 per cent tariff on China, with additional threats of higher duties on the Eurozone. A direct warning to BRICS nations against de-dollarization has escalated trade tensions, with Trump signalling 100 per cent tariffs on BRICS if they push for alternatives to the dollar," noted Jateen Trivedi, commodity and currency analyst at LKP Securities.
The rupee breached the 85 dollar mark on December 19, 2024, and in less than two months, has depreciated a further 2.4 per cent, despite the central bank intervening from time to time to stabilise the currency. With global tensions likely to continue for some time, the rupee could likely remain under pressure, analysts say.
The global uncertainty has also led to safe haven asset gold shining bright. In the global markets, gold had hit a record high of $2,817.23 an ounce on Friday and remained around $2,795 level on Monday. Back home on the Multi Commodity Exchange, gold futures contract too topped a new peak of Rs 82,900 per 10 gram.
"The uncertainty surrounding global trade imbalances has fueled continued gold buying," pointed Trivedi.
As the rupee depreciates, the cost of imported goods will go up and in turn put pressure on inflation.
The Reserve Bank of India's monetary policy committee meets later this week from February 5 to February 7. This will be the first MPC meeting under new governor Sanjay Malhotra. The central bank will be keeping a close watch on the currency moves.
