The rupee plummeted on Monday, breaching the crucial 87 mark against the US dollar, marking an all-time low. This depreciation was triggered by the escalating tariff war between the US and other countries such as Canada, Mexico, and China.
The forex market opened with a significant 42 paise gap-up, with the rupee starting at 87.03 per dollar compared to the previous close of 86.61. Despite hitting an intraday low of 87.28, the rupee managed to recover slightly to close at 87.1850, down by approximately 58 paise from the previous day’s close. The central bank is believed to have intervened in the market through state-owned banks by selling dollars.
Under President Donald Trump, the US Administration has imposed a 25 percent additional tariff on imports from Canada and Mexico, and a 10 percent additional tariff on imports from China. In response, these countries have threatened retaliatory measures. As a result, all global currencies, including the rupee, are facing pressure against the strong US dollar.
V Rama Chandra Reddy, Head of Treasury at Karur Vysya Bank, noted that the Reserve Bank of India (RBI) appears to be comfortable with the rupee’s depreciation in line with other global currencies due to the ongoing tariff wars. The rupee has depreciated significantly against the dollar in recent months, shedding 328 paise since October 2024.
Market experts suggest that the RBI’s strategy of allowing the rupee to align with other currencies, such as the Chinese yuan, signals a shift in its approach to managing the currency. Despite interventions and a decline in reserves, the rupee has continued to weaken over the past few months.
The rupee’s decline, particularly since Sanjay Malhotra took charge as RBI Governor in December 2024, reflects this new approach. The central bank’s willingness to let the rupee depreciate suggests a conscious effort to adapt to the current global economic landscape.
