By Ashwin Manikandan and Jaspreet Kalra
MUMBAI (Reuters) – The Indian rupee posted its steepest one-day drop since May and hit a five-month low on Wednesday, hurt by worries over steep U.S. tariffs on Indian exports alongside dollar demand from foreign banks and importers.
The rupee hit a low of 87.5125 against the U.S. dollar before closing at 87.42, down 0.7% on the day.
Traders said that while the Reserve Bank of India likely stepped in to support the local currency, the intervention was not very aggressive.
A 20%-25% tariff may be imposed on India’s exports in the absence of a trade deal and as the Asian country holds off on offering fresh concessions ahead of Friday’s deadline, Reuters reported on Tuesday.
U.S. President Donald Trump said on Tuesday that a trade deal with India had not been finalised and higher tariffs were possible.
Trump’s tariff threats, the psychological impact of the rupee breaching the 87 mark, and urgency among importers to hedge before the August 1 deadline has weighed on the rupee, said Dilip Parmar, a foreign exchange analyst at HDFC Securities.
If conditions remain the same, the rupee could fall below 88 in the coming weeks, Parmar said. The local unit had hit an all-time low of 87.95 in February.
In addition to trade uncertainty, persistent foreign portfolio outflows have also been a pain point for the rupee. Overseas investors have net sold over $1.5 billion of local stocks in July.
Caution among importers and the absence of inflows have kept the currency under pressure and that may persist in the near-term, a trader at a foreign bank said.
Meanwhile, Asian currencies were trading mixed and the dollar index was little changed at 98.8 as investors await the Federal Reserve’s policy decision later in the day.
The Fed is widely expected to keep rates unchanged, with the focus on commentary from Chair Jerome Powell and whether the decision is unanimous.
(Reporting by Ashwin Manikandan and Jaspreet Kalra; Editing by Sonia Cheema)
