The Indian rupee hit a new all-time low against the US dollar on Thursday, highlighting the growing strain from US tariffs on Asia's third-largest economy. The currency ended the day at 88.4425 per dollar, which is a drop of 0.39 per cent from the previous close of 88.1000, slipping past its earlier record low of 88.36 set last Friday.
The US tariffs on Indian goods, which took effect last month, are shaking investor confidence and making the rupee one of the most at-risk currencies in Asia. So far this year, foreign investors have withdrawn a staggering net total of USD 11.7 billion from India's equity and debt markets.
Washington's high tariffs are putting a damper on India's growth and trade outlook, creating additional pressure on the rupee. Prime Minister Narendra Modi has rolled out tax cuts to help cushion the impact, while both countries are looking into restarting trade talks to reduce obstacles.
At the same time, exporters are grappling with uncertainty regarding order inflows, and importers are increasingly taking steps to hedge against foreign exchange risks, which is adding to the strain on the demand-supply balance in the currency market.
Dilip Parmar, a foreign exchange research analyst at HDFC Securities, stated, "While importer dollar demand is persistent, exporter flows, and foreign portfolio flows seem to be muted, which is leading to pressure on the rupee."
The Reserve Bank of India has been stepping in to help slow down the rupee's decline. Market watchers have noticed that the central bank is selling dollars to reduce volatility instead of trying to defend a specific exchange rate.
Bankers point out that the focus is on allowing a "measured" depreciation to keep things stable for businesses and investors. The rupee's drop is particularly noticeable compared to its regional counterparts, many of which are benefiting from the anticipation of a US Federal Reserve rate cut coming up next week.
Abhishek Goenka, founder & CEO of IFA Global, stated, "Weakness in the rupee is likely to persist in the near term, considering the impact of the U.S. tariffs on labour-intensive sectors."
On Thursday, most Asian currencies took a dip, while the dollar index saw a slight increase as investors became more cautious, keeping an eye on the crucial US inflation data set to be released later in the day.
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