The Indian rupee, alongside its regional peers, was pegged back by a weaker Chinese yuan on Wednesday after US President Donald Trump’s “reciprocal” tariffs kicked in, opens new tab, including a massive 104 per cent levy on Chinese goods. The rupee declined 0.4 per cent to 86.65 against the U.S. dollar (Dh23.61) as of 09:40 am IST.
The offshore Chinese yuan hit an all-time low against the dollar on Tuesday, while its onshore counterpart was hovering near its lowest level since September 2023. Other Asian currencies were mostly lower between 0.1 per cent to 0.8 per cent.
The rupee has been on a steady decline, and in January, Khaleej Times reported on how the currency could drop below 26 per the UAE dirham or hit 90 per dollar this year as the Reserve Bank of India is poised to move away from its implicit quasi-peg to the dollar under the new governor.
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Meanwhile, the Reserve Bank of India (RBI) cut its key repo rate on Wednesday for a second consecutive time and changed its monetary policy stance to “accommodative” from “neutral” to boost the sluggish economy, which is facing further pressure from US tariffs.
As expected, the Monetary Policy Committee (MPC), which consists of three RBI and three external members, cut the repo rate by 25 basis points to 6.00 per cent. It started reducing rates with a quarter-point reduction in February, its first cut since May 2020. All six MPC members voted to cut the repo rate.
The new US tariffs on India threaten the central bank’s GDP growth estimate of 6.7 per cent for 2025-26 and the government’s economic survey forecast of 6.3 per cent-6.8 per cent.
Escalating trade tensions between the U.S. and China alongside the backlash to U.S. trade policies have increased two-way risks and divergences in the currency market, the bank said.
Indian corporates have stepped up hedging of foreign exchange liabilities while foreign investors have also pulled money from India’s equity markets, intensifying pressure on the rupee, a trader at a foreign bank said.
Overseas investors have net sold over $2.5 billion of Indian stocks so far in April, taking the yearly outflows to about $16 billion.
Meanwhile, dollar-rupee forward premiums declined, with the 1-year implied yield lower at 2.31 per cent as U.S. bond yields continued to rise.
