MUMBAI, July 31 (Reuters) – The Indian rupee fell to an over five-month low on Thursday, hurt by U.S. President Donald Trump’s threat of a 25% tariff on the Asian country’s exports, and the central bank likely stepped in to arrest its fall towards a record low, traders said.
The rupee slipped to 87.74 per U.S. dollar before paring losses to quote at 87.56 as of 11:30 a.m. IST, down 0.2% on the day.
The currency, within touching distance of its all-time low of 87.95 hit in February, is down 2% so far this year, making it one of the worst Asian performers.
On Wednesday, President Trump said the United States is still negotiating with India on trade after announcing earlier in the day that the U.S. would impose a 25% tariff and unspecified penalties on goods imported from the country starting Friday.
The Indian government said it is studying the implications of Trump’s announcements and added it remains dedicated to securing a fair trade deal.
Analysts reckon that India-U.S. trade negotiations may yield a lower levy.
“The key for markets and our forecast profile for INR is whether a trade deal between India and U.S. is delayed but not denied,” Michael Wan, senior currency analyst at MUFG said in a note.
ANZ said the uncertainty on trade is likely to keep the rupee under pressure and the Reserve Bank of India will likely step in to contain volatility, “if not aggressively defend a level for long.”
India’s equity benchmarks, the BSE Sensex and Nifty 50, fell about 0.4% each on the day.
Meanwhile, dollar-rupee forward premiums declined, with traders pointing to diminished odds of rate cuts by the Federal Reserve and mid-to-far tenor dollar-rupee buy/sell swaps conducted by state-run banks. (Reporting by Jaspreet Kalra; Editing by Mrigank Dhaniwala)
