Highlights:
- Rupee hits an all-time low of ₹87.4875 before closing at ₹87.4650, down 0.4%
- Indian currency is the worst-performing in Asia, down over 2% in 2025
- Market anticipates a 25-basis point rate cut by the RBI later this week
- Persistent foreign outflows, U.S. tariff uncertainty, and bearish sentiment weigh on the rupee
- State-run banks attempted to provide support near ₹87.25, but stop losses accelerated the decline
Rupee’s Performance and Market Trends
The Indian rupee depreciated to a record low on Wednesday, touching ₹87.4875 against the U.S. dollar before closing slightly higher at ₹87.4650, reflecting a 0.4% intraday decline.
Contents
Factors Driving the Decline:
- Anticipation of an RBI Rate Cut:
- Traders positioned themselves for a potential 25-basis point rate cut by the Reserve Bank of India (RBI), adding to the rupee’s weakness.
- Bearish Market Sentiment:
- The rupee has fallen over 2% in 2025, making it the worst-performing Asian currency so far this year.
- Foreign Outflows & Trade Uncertainty:
- Continued foreign portfolio outflows and uncertainty over U.S. trade tariffs have further pressured the currency.
- Stop-Loss Triggers:
- The rupee’s sharp decline in the afternoon session triggered stop-loss orders, exacerbating the fall.
- Dollar Demand from Foreign Banks & Importers:
- Importers engaged in panic buying of U.S. dollars, further adding to rupee depreciation.
Market Intervention & Dollar Index Performance
- State-run banks attempted to support the rupee near the ₹87.25 level through dollar sales, but the support was short-lived.
- The U.S. dollar index declined by 0.4% on Wednesday, while most Asian currencies gained, yet the rupee failed to capitalize on the trend due to domestic factors.
Impact of U.S. Tariffs:
- The rupee fell past ₹87 on Monday following U.S. President Donald Trump’s tariff announcements on Canada, Mexico, and China.
- Some relief came on Tuesday after tariff delays on Canada and Mexico were announced.
RBI’s Stance and Market Expectations
Analysts believe the RBI has become more tolerant of rupee depreciation as it prioritizes economic growth. However, uncertainty remains around the scale of policy action.
Nomura’s Outlook:
- The brokerage expects a 25-basis point rate cut this week but sees a low probability of a more aggressive policy shift.
- The global economic backdrop remains fluid, which may lead the RBI to take a cautious approach rather than opt for an outsized rate cut or a significant change in monetary stance.
Market Remains on Edge
With the RBI’s monetary policy decision approaching, investors remain cautious. The rupee’s trajectory in the coming days will largely depend on RBI’s policy stance, foreign investor flows, and global trade developments.
