Trump’s tariff threat puts Indian rupee in firing line, traders reckon RBI may step in

MUMBAI: The Indian rupee is set to open weaker on Thursday after U.S. President Donald Trump threatened a 25% levy on Indian exports before adding that negotiations between the two countries are still ongoing.

Traders reckon that the Reserve Bank of India may step in to limit the rupee’s losses as the currency moves closer to its all-time low of 87.95 hit earlier this year.

The 1-month non-deliverable forward indicated that the rupee will open in the 87.66-87.69 range versus the U.S. dollar, compared with 87.42 in the previous session.

Trump’s threatened 25% levy on Indian goods, in addition to an unspecified penalty for buying Russian oil and involvement in the BRICS group, may strain relationships between the world’s largest economy and the most populous democracy.

“We’re talking to India now - we’ll see what happens … You’ll know by the end of this week,” Trump told reporters after announcing the tariff on a social media post.

India’s equity benchmarks were poised to open weaker on the day with analysts pointing out that all eyes will now be on how negotiations progress.

“We expect more drama to unfold in coming days and the rupee, therefore, could see major gyrations,” said Abhishek Goenka, chief executive at FX advisory firm IFA Global.

“We may see the RBI step in to curb volatility and smoothen (INR) depreciation,” he added.

The rupee has declined 2% so far this year and is among the worst performing regional currencies, pressured by uncertainty on trade policies and persistent foreign outflows from local equities.

Overseas investors have net sold about $2 billion of local stocks over July so far, and analysts reckon that negative cues on trade could keep up the pressure.

Elsewhere, the U.S. Federal Reserve kept policy rates unchanged on Wednesday and gave little indication of when rates may be cut again.

The dollar index rose nearly 1% and was last quoted at 99.7.

Given the negative cues, the central bank would “most likely need to stay active,” a Singapore-based trader at a bank said.

The trader pointed out that price-action indicated that the RBI had likely stepped into the non-deliverable forwards market as well to support the rupee overnight.