Rupee Plunges to Record Low of 87.96 Amid Trump's New Tariff Plans

The Indian rupee plunged to a new record low of 87.9563 against the US dollar on February 10, following the introduction of fresh tariff plans by US President Donald.

The domestic currency opened at 87.9175 per US dollar, significantly weaker than its previous close of 87.4275. This sharp depreciation reflects mounting concerns over the potential economic impact of new US trade policies and global market volatility.

Invest in Indian Markets and Unlock Future Potential With 5paisa!

Open Account Now

Impact of US Tariffs on Global Markets

On February 9, US President Donald Trump announced a 25% tariff on all steel and aluminum imports, a move that sent ripples across international markets. Addressing reporters aboard Air Force One, Trump stated that these tariffs would apply to all countries exporting these metals to the US. However, he did not provide a specific timeline for their implementation.

Additionally, Trump mentioned that reciprocal tariffs would be imposed later in the week on nations that impose taxes on US imports. These additional duties, which could be formally announced on Tuesday or Wednesday, will not take effect immediately but will be rolled out soon after.

The announcement led to a surge in the US dollar index, which climbed to 108.336 in early trading, compared to 108.040 in the previous session. Investors flocked to the dollar as a safe-haven asset amid uncertainties surrounding global trade policies. Emerging market currencies, including the rupee, bore the brunt of this shift, experiencing heightened volatility.

Domestic Factors Affecting the Rupee

Despite the depreciation, the Indian rupee had found some stability earlier in the week, particularly on February 7, following the Reserve Bank of India's (RBI) monetary policy announcement. The RBI’s Monetary Policy Committee (MPC), in its first meeting under the new governor, Sanjay Malhotra, opted to cut the repo rate by 25 basis points to 6.25%. This move aimed to support India’s slowing economic growth.

The decision marked the first rate cut in nearly five years and came just a week after Finance Minister Nirmala Sitharaman presented the Union Budget for 2025-26. The central bank projected GDP growth for the next fiscal year at 6.7%, while keeping its inflation estimate unchanged at 4.8% for the current fiscal year.

The MPC unanimously decided to maintain a "neutral" stance, signaling that further rate cuts would be dependent on future economic conditions.

Broader Economic Implications

The rupee’s decline could have multiple implications for the Indian economy. A weaker currency makes imports more expensive, which could lead to higher inflation, especially for essential commodities like crude oil, electronics, and industrial machinery. India, being a major oil-importing nation, is particularly vulnerable to fluctuations in currency value, as a weaker rupee increases the cost of importing crude oil, leading to a rise in fuel prices.

Conversely, a depreciated rupee can benefit exporters by making Indian goods and services more competitive in global markets. Sectors such as information technology (IT), pharmaceuticals, and textiles could see a boost in revenues due to favorable exchange rates. However, the overall impact on the economy would depend on how prolonged and severe the depreciation is.

Market Reactions and Investor Sentiment

Stock markets reacted negatively to the rupee’s record low, with investors closely watching global developments. Analysts believe that further declines in the currency could trigger intervention by the RBI to stabilize the exchange rate. The central bank has a history of stepping in through dollar sales in the forex market to curb excessive volatility.
Meanwhile, foreign institutional investors (FIIs) have been cautious, with capital outflows increasing amid concerns over global trade uncertainties. Higher interest rates in the US, coupled with the prospect of additional tariffs, have made American assets more attractive, leading to outflows from emerging markets like India.

Going forward, the rupee’s movement will largely depend on global geopolitical developments, US trade policy actions, and RBI’s monetary policy stance. If trade tensions escalate further, emerging market currencies, including the rupee, may continue to face downward pressure. However, a measured policy response from the Indian government and the central bank could help mitigate some of these risks.

For now, market participants remain watchful, as any further announcements from the US administration regarding tariffs or monetary policy shifts could significantly impact currency movements and investor confidence.