MUMBAI, Aug 5 (Reuters) – The Indian rupee weakened on Tuesday as U.S.-India trade tensions escalated, though likely central bank intervention helped avert a slide to a record low.
The currency was at 87.8275 to the U.S. dollar at 1:15 p.m. IST, weaker than Monday’s close of 87.6550. It earlier fell to 87.8850, near the February record low of 87.95.
The rupee opened at 87.85 per dollar on possible central bank intervention, with traders saying the RBI sold dollars through state-run banks ahead of market open to help prevent a breach of the 88 level.
“The central bank has absorbed the tariff-related impact and prevented the big figure to change for now,” a currency trader with a private bank said.
U.S. President Donald Trump again threatened to substantially raise tariffs on Indian goods, citing India’s continued purchases and resale of Russian oil.
India’s foreign ministry vowed to take “all necessary steps” to protect national interests and economic security, fuelling fears of an escalating trade row after U.S. President Donald Trump imposed surprise 25% tariffs on Indian imports last week.
Traders warned that persistent foreign outflows from Indian equities may accelerate if talks stall, further pressuring the local currency.
President tariff threats on India, outflows from domestic equity markets, panic buying by importers and dollar index unable to find a clear direction are adding to pressure on the rupee, said Kunal Sodhani, vice president at Shinhan Bank India.
“For USD/INR, breaking the onshore all-time highs of 87.95 will open doors to uncharted territory and may let the pair test 88.50 levels, while any close below 87.60 may bring consolidation back to the pair.” (Reporting by Dharamraj Dhutia; Editing by Nivedita Bhattacharjee)
