The Indian rupee took a sharp dip on Tuesday, falling over 50 paise to cross the 87 per Dollar mark due to heavy month-end importer demand for Dollars, FPI selling in the Indian capital markets, and uncertainty surrounding the impact of Trump’s tariffs.
Closing at 87.21 per USD, the rupee witnessed a decline of about 52 paise compared to its previous close of 86.6950. This drop marks the biggest single-day fall in approximately three weeks.
Forex traders noted that the RBI intervened in the market in response to the persistent demand for Dollars.
The depreciation of the Indian currency was attributed to the strengthening of the US Dollar following US President Donald Trump’s announcement of plans to impose tariffs on Mexico and Canada. This boosted the Dollar index, which added pressure on the Rupee.
Deutsche Bank’s report highlighted the likelihood of the Rupee’s trajectory experiencing more two-way movement under RBI Governor Sanjay Malhotra’s leadership, reflecting market dynamics. The Bank forecasted the INR to end at 88 versus the USD by December 2025, anticipating near-term volatility, especially in the face of escalating global trade tensions.
DBS’s Senior Economist, Radhika Rao, pointed out that the RBI has significantly increased its net forward dollar sales to $67.9 billion as of December 2024 to stabilize the currency.
CareEdge Ratings observed that FPIs have withdrawn USD 24 billion from equity markets since October 2024, impacting the rupee and domestic liquidity conditions. FPI net inflows into debt remained low at just $1 billion since October 2024, reflecting a minimal interest rate differential with the US.
Despite the challenges posed by reciprocal tariffs, the depreciation of the rupee against the dollar could help make Indian exports more competitive, partially offsetting the adverse impact.
Overall, the rupee’s decline against the Dollar was influenced by various factors including the demand for Dollars, FPI selling, and global trade tensions, highlighting the interconnected nature of currency markets.
