Rupee hits record low of 87.18 amid Trump’s trade war impact

The rupee has lost more than 4 percent since October, when it was trading above 83.70, despite the Reserve Bank selling billions of dollars to defend it.
The tariffs imposed by Trump have fueled worries of a full-scale trade war.
The tariffs imposed by Trump have fueled worries of a full-scale trade war.
Updated on
2 min read

After hitting a record low of 87.29 in the opening trade, the rupee continued to decline, closing sharply lower at 87.185 to the dollar on Monday. This came after U.S. President Donald Trump imposed punitive tariffs on imports from China, Mexico, and Canada, its largest trading partners, fueling fears of a trade war that rattled global financial markets.

The rupee has lost more than 4 percent since October, when it was trading above 83.70, despite the Reserve Bank selling billions of dollars to defend it.

The rupee declined to 87.29 before closing at 87.1850, down by nearly 0.7%, its biggest single-day percentage loss since January 13. Traders attributed the feeble recovery to heavy dollar selling by public sector banks while the Reserve Bank seen visibly missing from stern intervention. The central bank has since October sold more than $100 billion worth of dollar to prop the rupee but to not with much success.

The opening was so deep after the equity markets also fell badly and closed in deep red with losing half a percentage points down, negating the budget boost that investors were expecting Saturday.

Following this tariff wars, the dollar index, which measures the strength of the greenback against a basket of six major currencies (the euro, the Japanese yen, the British pound, Canadian dollar, Swedish krona and the Swiss franc) surged 1.35% to 109.83, its highest.

The dollar’s strength has affected other Asian currencies as well, including the Chinese yuan. And since the yuan and rupee often move in the same direction, this decline has also put pressure on the rupee.

The tariffs imposed by Trump have also fueled worries of a full-scale trade war, with global brokerage firm Morgan Stanley saying that “the risk of our worst fears materialising has risen. Risks are skewed towards further escalation. Asia will be exposed on account of high trade orientation and seven economies run large trade surpluses with the US,” it added.

“The fear of tariffs has come true. There is safe haven demand,” a dealer at a state-owned bank said, adding more pain is on the way for the rupee as Trump is unlikely to leave Indian goods in his next round of punitive tariffs.

Another reason for this that the market is fearing that the rupee pain is  likely to continue in the near term is that the Reserve Bank has reduced its intervention in the foreign exchange market—as visible from the latest forex data wherein it was reported a marginal rise in the reserves after losing for almost three months continuously.

 “The optimism on the back of the budget has been compromised due to rise in US yields,” said a dealer at a state-owned bank.

Anshul Chandak, head of treasury at RBL Bank, expects the rupee stay under pressure over the next 6–8 weeks.

Asian and European stocks too fell Monday, while US equity futures pointed sharply lower. The Mexican peso tumbled more than 2% to touch its lowest in nearly three years, while the offshore Chinese yuan fell 0.3%, according to foreign news agency reports.

Dollar sales by state-run banks helped limit the rupee loss, the absence of stern intervention by the central bank was seen by many traders as an affirmation that it is allowing the rupee to move in line with its peers., a trader at a public sector bank said.

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