On Monday, the Indian rupee experienced a significant drop, losing 61 paise or 0.71%, to settle at 85.8425 against the US dollar. This marked its steepest single-day decline since January 12. The rupee’s fall was largely influenced by the unsettling news surrounding US President Donald Trump’s new tariff proposals, which shook global financial markets and led to considerable declines in Asian currencies and stocks.
Impact of Tariff Policies on Currency Markets
The escalating trade tensions stemming from Trump’s tariffs have put pressure on the rupee, according to Kunal Sodhani, Vice President of Treasury at Shinhan Bank. He noted, “The increasing uncertainty surrounding trade policies is causing a risk-averse mindset among investors, resulting in capital outflows from emerging markets.” The dollar index rebounded sharply, surpassing the 103 level, which contributed to the dollar’s strength against other major currencies.
- Key currency movements:
- Dollar index increased by 0.2% to 103.2.
- Chinese yuan fell 0.3% to a near four-month low.
- Among major Asian currencies:
- Philippine peso dropped 1.06%.
- Malaysian ringgit declined 1.04%.
- South Korean won decreased 0.19%.
- Japanese yen fell by 0.1%.
- Taiwanese dollar rose 0.14%.
Future Outlook for the Rupee
Analysts like Anuj Choudhary, research analyst at Mirae Asset Sharekhan, predict that the rupee will continue to face downward pressure. “Weak global markets and the ongoing uncertainty with trade tariffs are likely to keep the local currency under strain,” he stated. Additionally, selling pressure from Foreign Institutional Investors (FIIs) is expected to add to the rupee’s woes. However, he pointed out that lower crude oil prices could offer some support.
- Brent crude oil prices have also been tumbling, with a 3% drop to $63.59 per barrel, influenced by the US tariffs and the OPEC+ announcement to increase output.
Resilience of India’s Forex Reserves
Despite the rupee’s decline, analysts are optimistic about the Reserve Bank of India’s (RBI) ability to stabilize the currency. Recent data shows that India’s foreign exchange reserves increased by $6.596 billion, reaching $665.396 billion for the week ending March 28. This substantial reserve provides a buffer for the RBI to intervene when necessary.
In conclusion, while the rupee faces challenges amid global economic uncertainties, the strong forex reserves could play a crucial role in mitigating risks, making it essential to monitor these developments closely.
