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Donald Trump tariff woes keep rupee near record low despite weak dollar
According to market participants, the rupee has stayed under pressure despite the weaker dollar as subdued capital inflows and external headwinds weigh on investor sentiment. Recent US tariff hikes of up to 50 per cent on Indian exports have heightened trade tensions, dented investor confidence, and spurred foreign portfolio outflows.
'It is only the tariffs, which is a concern right now. Otherwise, we (the rupee) typically weaken by 1 per cent to 2 per cent in a year. So, whatever excess weakness has happened is because of tariffs. We are expecting FY26 to close at an average rate of 87 per dollar,' said Abhishek Goenka, chief executive officer at IFA Global.
Higher tariffs threaten India's export earnings, curbing forex inflows and thus boosting dollar demand in the local market.
Additionally, the rupee lost carry trade appeal after the Reserve Bank of India unexpectedly cut its policy rate by 50 basis points in June, a move that reduced forward premiums and left the currency more vulnerable to external shocks.
Against the euro and pound, the rupee has dropped 12 per cent and 7 per cent, respectively, this year. Analysts point to a shift of global capital toward developed markets, which are trading at record highs. Foreign portfolio investors have sold a net ₹10,147 crore of equities in this month (until Monday).
'The dollar index has softened, which means the dollar has weakened against other currencies like the euro and pound in the basket because of tariffs,' said the treasury head at a private bank. 'The rupee is under pressure because of the continuous outflow from equities,' he added.
In early 2025, the euro and pound rallied as concerns over the US economic outlook prompted investors to rotate into European assets. The rupee hit an all-time low of 87.95 per dollar on February 10, before rebounding about 2.5 per cent by early July to 85.59 on improved trade sentiment, portfolio inflows and reduced speculative positioning.
But renewed tariff worries, sustained capital outflows, and weakening sentiment in August pushed the rupee back toward its lows, trading between 87.80 and 87.88. RBI intervention in spot and non-deliverable forwards markets has so far capped losses below the 88 mark, according to market observers.
On Monday, the rupee closed at 87.66 per dollar, unchanged from Friday.
RBI data show the rupee's real effective exchange rate (REER) stood at 100.36 in June, against 101.12 in May. The REER adjusts the nominal effective exchange rate for inflation differentials with major trading partners, with values above 100 indicating relative appreciation that can erode export competitiveness.
The central bank's intervention has come at a cost. Foreign exchange reserves fell $9.3 billion to $688 billion in the week ended August 1, the steepest weekly decline of 2025 and the biggest since November 2024. Of that, $6.9 billion came from spot market sales, while revaluation losses accounted for $2.1 billion.
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Indian Express
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India's July retail inflation hits 8-year low of 1.55%, second-lowest ever
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News18
38 minutes ago
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Retail Inflation Eases Sharply To 1.55%; Top 5 States With Highest And Lowest CPI
Last Updated: India's retail inflation dropped to an eight-year low of 1.55% in July 2025. Kerala had the highest inflation at 8.89%, while Assam had the lowest at -0.61%. Retail Inflation In July 2025: India's retail inflation hit an eight-year low of 1.55 per cent in July 2025 majorly driven by a decline of food inflation, including prices of pulses, vegetables, cereals, eggs, sugar and transport costs. This is down from 2.10% in June 2025 and marks a 55-basis-point drop month-on-month. It is the lowest inflation print after June 2017. The CPI-based inflation had stood at 2.10 per cent in May 2025. Still, in some states, combined retail inflation remained way higher than the national average. Kerala topped the chart to have the highest combined retail inflation at 8.89 per cent in the country. Kerala is followed by Jammu & Kashmir and Punjab. Looking at the lowest inflation states in the country, Assam topped the list. On the other hand, Assam saw the steepest decline at -0.61%, with Telangana, Odisha, Bihar, and Uttar Pradesh also among the lowest inflation states. Vivek Rathi, National Director- Research, Knight Frank, India said, since the decline in inflation is largely driven by contracting vegetable prices, which are seasonal in nature, and prices in the non-food category remain sticky, the boost to disposable incomes is likely to be modest. As a result, domestic consumption demand is unlikely to see a significant pickup. CPI inflation came in at 1.55%, slightly above market expectations of 1.40%, but well in line with RBI trajectory. This was largely on account of low food inflation. We believe CPI would be well anchored going ahead also, and might undershoot RBI trajectory, points out Akhil Mittal, Senior Fund Manager – Fixed Income, Tata Asset Management. view comments Disclaimer: Comments reflect users' views, not News18's. Please keep discussions respectful and constructive. Abusive, defamatory, or illegal comments will be removed. News18 may disable any comment at its discretion. By posting, you agree to our Terms of Use and Privacy Policy.
