Indian Rupee Hits Record Low Amid Market Concerns and Tariff Issues

The Indian rupee declined by 5 paise on Tuesday, reaching a new low of 88.80 versus the US dollar. This fall is attributed to ongoing foreign capital outflows and uncertain global trade conditions.

Although the depreciation was tempered by a significant drop in global crude oil prices and a weaker US dollar, forex traders noted persistent trading pressure.

Market analysts are particularly attentive to the upcoming decision from the Reserve Bank of India (RBI) Monetary Policy Committee, set to be announced on Wednesday.

On the interbank foreign exchange market, the rupee opened at 88.73 against the dollar and navigated between 88.69 and 88.85 before closing at the notable low of 88.80. On the preceding day, it had also settled down by 3 paise at 88.75, reflecting an ongoing trend of vulnerability.

Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, attributed the rupee's decline to persistent selling from Foreign Portfolio Investors (FPIs). "Constant pressure from FPIs buying dollars brought down the rupee," he stated, while also highlighting the impact of geopolitical tensions and recent tariff impositions by the United States.

Since August, when tariffs of up to 50% were imposed on Indian exports by US authorities, the rupee has struggled to maintain stability. Bhansali projects that the exchange rate may fluctuate between 88.50 and 89.00 in the immediate future.

The backdrop of the upcoming RBI meeting is particularly critical given these circumstances. The central bank's decisions will likely influence market sentiments and investment behaviours in the region.

Simultaneously, the dollar index, which measures the US dollar's performance against a basket of other currencies, was recorded at 97.79, marking a 0.11% decline.

On the crude oil front, Brent crude, the global oil benchmark, was trading 1.03% lower at $67.27 per barrel. This decline may have mitigated some of the downward pressure on the rupee, providing a semblance of stability amid concerns.

The domestic equity market also witnessed a decline, with the BSE Sensex dropping 97.32 points, settling at 80,267.62, and the NSE Nifty falling by 23.80 points to 24,611.10. Notably, Foreign Institutional Investors sold equities worth ₹2,831.59 crore on Monday, contributing to a deteriorating market sentiment.

Trade relationships remain critical, particularly as the United States is expected to implement a 100% tariff on branded or patented drugs beginning October 1, unless pharmaceutical companies establish manufacturing facilities within the US. This exemption will apply to projects already under construction, further complicating trade dynamics.

As global markets watch closely, the outcomes from the RBI's meeting and equities trends will be pivotal for the Indian economy in the coming days. Investors and policymakers alike remain cautious as the situation develops, navigating through a complex landscape of international trade issues and domestic economic indicators.