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Informist, Monday, Sept. 15, 2025

 

By Pratiksha

 

NEW DELHI – The rupee's fall to lifetime lows against the dollar in recent times is a result of the concerns around the impact of US tariffs on India. But the sustained decline in the Indian currency also reflects the Reserve Bank of India's tolerance towards a weaker exchange rate due to the ongoing uncertainties, according to market participants.

 

After falling below the psychologically-crucial 88-per-dollar mark for the first time on Aug. 29, the rupee hit a record low of 88.4550 a dollar on Thursday. While the central bank sold dollars to prevent a runaway depreciation, the intervention was very modest in nature, dealers said. So far this year, the Indian unit has depreciated more than 3% against the dollar, underperforming its emerging market peers. On Monday, the rupee was at 88.2500 a dollar at 1103 IST. 

 

The US has slapped an additional 25% punitive tariff on Indian goods, on top of a 25% reciprocal tariff, citing New Delhi's continued purchases of Russian crude oil. Market participants pointed out that the RBI might be letting the rupee weaken as it may help cushion the hit to exporters from higher US tariffs. A weaker rupee would provide India trade competitiveness against its trading partners and potentially offset at least some of the impact of US tariff hike, they said.

 

"As long as 50% bilateral US tariffs persist, the pace of depreciation pressure will be higher. A weaker rupee is the only policy tool in the near-term to counter the impact of tariffs," Gaura Sen Gupta, chief economist at IDFC FIRST Bank, said.   

 

Though recently there has been a positive shift in US' tone around a trade deal between New Delhi and Washington, market participants are still uncertain about any reprieve in the near-term. Negotiations between India and the US hit a near-deadlock after multiple rounds of negotiations over the US' demand for access to India's farm and dairy sector and halting Russian oil purchases.

 

"As indicated by the Government, trade discussions are ongoing. Therefore, an immediate breakthrough that would significantly alter the currency outlook is not expected," Sameer Karyatt, executive director and head of trading at DBS Bank India, said. He expects the rupee to move towards 89.00 a dollar in the near term.

 

Market participants also said that the apex bank has avoided intervening heavily to protect the rupee at a time when its foreign exchange reserves are robust and hovering near their all-time highs. India's foreign exchange reserves were at $698.27 billion as on Sept. 5, not too far from the record high of $704.89 billion in September last year.

 

The RBI may also not want to spend dollars to protect the rupee at a time when it is trying to cut down on its large outstanding dollar/rupee forwards book, according to dealers. The RBI's net outstanding short positions in dollar/rupee forward contracts were at $57.85 billion at the end of July, falling for the fifth straight month.

 

"RBI has been intervening in the spot market to moderate the volatility in dollar/rupee. However, its intervention is much more moderate compared to last year. It's constrained by capital flows turning negative post escalation in tariff tensions. Plus, presence of large negative forward book," Sen Gupta said. She added that so far in the financial year, the RBI has allowed the near-term buy-sell swaps to mature fully and estimates the short forwards book at $50.2 billion as of August. So far in 2025, foreign portfolio investors have pulled out over $10 billion from the Indian markets on a net basis.

 

Going by these expectations, market participants now see the rupee depreciating to as low as 89.00-89.50 in the near-term, unless there is any concrete positive development on the India-US trade negotiations and sustained weakness in the US dollar. "The weak dollar theme, coupled with hopes that US-India trade talks may make progress, could provide some breathing room for the rupee in the coming days," Amit Pabari, managing director at CR Forex, said in a note. "But for now, tariffs remain the overhang that markets cannot ignore."  End

 

Edited by Ashish Shirke

 

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