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Informist, Wednesday, Jul. 30, 2025

By Pratiksha

NEW DELHI – After settling at an over five-month low in the spot market on Wednesday, the rupee slipped further in the offshore non-deliverable forwards market after US President Donald Trump announced a 25% tariff on India along with an additional penalty, from Friday. 

"It's going to be a volatile time ahead for rupee. This is possibly the worst that could have happened," a dealer at a big state-owned bank said. "I expect 88 (a dollar) to breach tomorrow (Thursday), unless RBI (Reserve Bank of India) comes in heavily."

On Wednesday, the rupee had logged its biggest single-day fall since May 8 and settled at 87.4200 a dollar in the domestic spot market as Trump on Tuesday said India will likely be hit with a 20-25% tariff. Shortly after the tariff announcement at 1739 IST, the rupee fell to 87.75 in the non-deliverable forwards market.   

"Remember, while India is our friend, we have, over the years, done relatively little business with them because their Tariffs are far too high, among the highest in the World, and they have the most strenuous and obnoxious non-monetary Trade Barriers of any Country," Trump said on his social media platform Truth Social. The 25% tariff is only slightly lower than the 26% duty that Trump had announced in April, which was eventually suspended till Aug. 1. 

Foreign exchange dealers now see a high likelihood of the Indian currency falling past the psychologically crucial 88-per-dollar mark in the spot market Thursday, which would also be a record low for the rupee. The rupee had fallen to a record low of 87.9500 a dollar on Feb. 10. 

"It will be a weak start for the rupee tomorrow (Thursday). While people were expecting 20-25% kind of tariffs, the penalty was not expected at all and will add to the pain (for rupee)," a dealer at a private-sector bank said. 

Dealers expect persistent foreign portfolio outflows as investors may turn risk averse after the tariff announcement. This, dealers said, will weigh on the rupee. Importers may also step up dollar demand on fear that the rupee may depreciate further going ahead, they said. "There will naturally be a lot of buying pressure (for dollars). I think it will be a problem if the 88 level breaks," a dealer at a foreign bank said. "If 88 breaks, the next technical level will be directly 88.50."

Market participants will be watchful of the RBI's intervention strategy in the spot market. While most expect the central bank to step in through dollar sales actively to protect the rupee from falling past the 88-per-dollar mark, others expect it to let the Indian currency find its level. 

Whatever be the case, currency traders agree that it will be an interesting time for the markets from Thursday, with the much-awaited announcement now out in the open.  End

US$1 = INR 87.42

Edited by Tanima Banerjee

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