Informist Poll
Trump tariff worries may drag rupee down to 87.50/$1 Feb-end
This story was originally published at 20:35 IST on 3 February 2025
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By Sourabh Kumar and Gowri Lakshmi
MUMBAI – After a fall of 1.2% against the dollar last month, the rupee may be headed for more difficult days ahead as the recent sweeping tariffs by US President Donald Trump on Canada, Mexico and China have led to worries that there may be more tariffs in the offing.
According to the median of the estimates of 17 market participants from banks, corporate houses, and brokerage firms, the rupee is seen at 87.50 per dollar by the end of February, against 86.6050 at the end of last month.
On Saturday, Trump announced the imposition of 25% tariff on items imported from Canada and Mexico, with an additional tariff of 10% on China. Following this, the rupee fell past the psychologically-significant 87-per-dollar mark and hit a lifetime low of 87.2825 per dollar on Monday.
Market participants expect the rupee to remain under pressure due to uncertainty over Trump's policies, and expectations that the recent tariff imposition by him might be just the beginning of a wider and long-lasting global trade war. The dollar index, which surged over 1% after the tariff announcement, is expected to gain further in the coming days, according to respondents in the poll.
"A basic mistake a lot of people have made is to assume that Trump 2 (Trump's 2nd tenure as US president) is going to be the same as Trump 1," said Anindya Banerjee, head of research, currency and commodity, Kotak Securities. "I have a view that Trump 2 is going to be far more decisive and far more aggressive as far as America First is concerned. And America First basically means de-globalization."
Since Trump won the US presidential elections for a second term in the White House on Nov. 5, the rupee has depreciated 3.7% against the US dollar. The dollar index is also expected to remain strong on the back of expectations that interest rates may remain higher for longer in the world's largest economy, with chances of a rate cut fading owing to Trump's potential inflationary policies.
Apart from the US unit, the 'Trump factor' may continue impacting the sentiment of foreign portfolio investors as well. FPIs continuously withdrew funds from emerging markets, including India, last month amid uncertainty over Trump's policies. Last month, FPIs pulled out $6.68 billion from the domestic market on a net basis. With Trump's tariff policies coming into effect and the increasing risk aversion sentiment after that, FPIs may continue to pull out funds from Indian markets this month as well, weighing on the Indian currency, market participants said.
Moreover, unlike the majority of 2024, the rupee is not seen getting much support from the Reserve Bank of India either. Noting the RBI's recent tolerance for a depreciating rupee, market participants do not expect the central bank to come strongly in the way of sharp depreciation in the currency, and expect it to let it move in line with its Asian peers. The rupee has depreciated 1.8% against the greenback so far this calendar year.
On Monday, the RBI let the rupee depreciate in line with its peers; the currency fell 0.7% against the dollar. Other Asian units werd own 0.4-1.2% against the greenback.
"RBI will not repeat its mistake of being oversold and keeping the rupee in a 3-paise range, particularly when Trump has his disruptive agenda which could keep hitting emerging market currencies directly or indirectly. So, RBI will now be off and on and selling only at extreme volatility and otherwise will not attempt to change the direction of the currency pair now," said Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.
Adding to the rupee's woes will be a likely rate cut of 25 basis points by the RBI's Monetary Policy Committee on Friday, poll respondents said. The rate-setting panel is expected to lower interest rates for the first time in nearly five years later this week, according to a poll by Informist.
While currency traders expect the RBI to step in to smoothen the rupee's decline in case of major depreciation, the path ahead for the Indian currency looks only murkier as bets stack up against it.
POLL DETAILS
| Participant | Feb-end | Mar-end | |
| ANZ Banking Group | 88.00 | ||
| Bank of Bahrain and Kuwait | 87.50 | 87.75 | |
| CSB Bank | 86.90-87.00 | 86.75 | |
| DCB Bank | 87.50 | ||
| Edelweiss Securites | 88.50 | 90.00 | |
| Finrex Treasury Advisors LLP | 87.50 | 88.00 | |
| HDFC Bank | 87.00-87.50 | 87.20-87.70 | |
| HDFC Securities | 86.20-87.90 | 87.20-88.60 | |
| IBM India | 87.50 | 87.90 | |
| ICBC | 87.50-88.00 | ||
| IDFC Bank | 87.50 | ||
| Karur Vysya Bank | 87.40-87.60 | ||
| Kotak Mahindra Bank | 87.50 | 87.80 | |
| Kotak Securities | 87.50 | ||
| Large brokerage | 86.50-87.50 | ||
| LKP Securities | 87.50 | 88.50 | |
| Shinhan Bank India | 86.45-87.80 | 86.20-88.20 | |
| UCO Bank | 87.30-87.60 | ||
| Median | 87.50 | 87.90 | |
End
US$1 = INR 87.1850
Edited by Avishek Dutta
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