The rupee is expected to depreciate further on Thursday following US President Donald Trump’s decision to impose a higher-than-expected tariff Trump Tariffof 25% on Indian goods. The uncertainty over tariffs was the main reason behind the rupee’s weakness for the last couple of weeks.
Rupee’s depreciation
For the previous 11 trading sessions since July 16, the rupee depreciated 1.88% against the US dollar. On Wednesday, the currency breached the 87-mark for the first time since March 13. It fell to a five-month low to end at 87.42/$, down 61 paise, the steepest single-day fall since May 8. While the RBI intervened via dollar sales to curb any excess volatility, there was not any aggressive intervention, allowing the rupee to depreciate, said forex traders.
POV’s
Madan Sabnavis, chief economist at Bank of Baroda, and Rajeev Pawar, head – treasury, Ujjivan Small Finance Bank, believe that the currency will come under further pressure due to the tariff decision. “On Thursday, the rupee is likely to open 30-40 paise weaker,” Pawar said.
“Month-end demand from importers, rising FDI net outflows, FPI selling and the RBI’s decision to allow the rupee to depreciate added to the weakness, Sabnavis said.
FPIs offloaded equities worth $2.2 billion in July.
Anindya Banerjee, head of currency and commodity research at Kotak Securities, expects the rupee to be volatile on Thursday. “I expect the RBI intervention to be aggressive on Thursday as the rupee tends to depreciate further after the tariff announcement. The currency is likely to trade in a broad range of 87-88.”
Meanwhile, the dollar index rose to 99.01 on Wednesday, compared to 98.89 in the previous session. The strengthening of the dollar will continue to weigh on the rupee, said forex traders.
With the rupee continuing to be the worst performer among its Asian peers, the CEO of a domestic mutual fund expects a limited downside from current levels, noting that while the rupee typically depreciates 2-3% annually for inflation adjustment, the current decline may be temporary, with potential RBI intervention supporting the currency.