The rupee breached the 88 levels for the first time on Friday, recording its biggest one-day monthly fall to close at an all-time low of Rs 88.20 against the US dollar.
Why the Rupee is under pressure
“Tariffs sneeze has seen rupee catching pneumonia,” says Kunal Sodhani, Head Treasury at Shinhan Bank, further adding that the “outflows from equity markets, Trump’s tariff pressure on India, month-end oil demand and Rupee-Yuan dynamics are all creating pressure on the Rupee.”
Agreeing with him, Anindya Banerjee, Head Currency & Commodities, Kotak Securities, said, “RBI’s willingness to allow rupee to depreciate has also added to the weakness,” adding that the undervaluation of the rupee is the biggest positive.
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With the 87.95 levels finally broken, several stop losses were triggered, which contributed to the fall, said the analyst. On Friday, after opening lower at 87.69, down 6 paise from its previous close of 87.63 on Thursday, the rupee slipped to an intra-day low of 88.31 before closing at 88.20 on short covering from bankers and traders.
With today’s fall, the rupee in FY26 has depreciated over 3.2% against the dollar, making it the biggest loser among Asian currencies. Barring the Hong Kong Dollar, which has lost 0.22% YTD, all other Asian currencies have appreciated between 0.4% to 8.2%.
Rupee’s outlook and the RBI’s stance
The recent weakness in the INR is purely due to the US imposing an additional 25% tariff on Indian goods, which means double of the total duties faced by the South Asian nation to 50%. Meanwhile, in the last four months, INR has fallen by around 6% against the Chinese Yuan. “The Yuan-Rupee exchange rate is crucial for India’s trade competitiveness, as both countries compete directly in US bound sectors such as textiles, engineering goods, and chemicals”, said Sodhani, adding a weaker rupee against the Yuan makes Indian exports relatively cheaper than Chinese goods, helping to slightly curtail the impact of higher US tariffs and also help in narrowing India’s trade deficit with China.
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With the RBI continuing to hold foreign exchange reserves of $690.7 billion as on August 22,
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