The Rupee hit an all-time intraday and closing low on Wednesday as the foreign exchange market continued to be impacted by the US imposing new tariffs on imports from Canada, Mexico, and China, along with retaliatory measures from the latter.
Despite the US Dollar weakening, the Rupee experienced a decline, closing at 87.46 per dollar, down by about 40 paise from the previous close of 87.06. The Rupee reached a low of 87.50 during the day, following an opening of 87.13 per dollar.
The ongoing three-day Monetary Policy Committee (MPC) meeting (from February 5th to 7th) adds to the pressure on the Rupee. The committee faces a tough decision as a weak Rupee could boost exports but also increase import costs. With India relying on imports for about 85% of its crude oil needs, a weak Rupee, combined with rising oil prices, could lead to inflation, which the MPC aims to keep at 4%.
Economist Dipanwita Mazumdar from Bank of Baroda noted that the yield differential between India and the US has been shrinking since November, coinciding with a period of Rupee depreciation. She suggested that the decrease in the interest rate gap between India and the US, driven by a sharper rise in US 10-year yields, has led to outflows of capital, resulting in the depreciation of the Rupee.
