The Rupee declined to close at a record low on Thursday as expectations of a cut in the repo rate weighed on forex market sentiment amid continued demand for Dollars from importers.
The Indian currency closed at 87.5775 per USD, down about 11 paise, against previous close of 87.465. Opening gap up at 87.52/USD, intraday, it tested a low of 87.5825.
Market players say the six paise movement during the course of the day indicates that RBI sold Dollars to prevent further depreciation.
A repo rate cut is seen as negative for the Rupee as it may trigger further Dollar outflows as investors search for higher returns in safe haven markets such as the US.
The Rupee has depreciated about 4.15 per cent since Donald Trump was elected as US President in November 2024. Trump has imposed tariffs on imports from Canada, Mexico and Canada. These countries haven taken tit-for-tat tariff measures.
Recent rupee depreciation
DBS Bank, in a report, noted that the recent rupee depreciation has raised concerns over pass through to price pressures. A 5% deprecation in the currency adds 0.35pp to headline inflation according to the central bank, although manufacturers are unlikely to immediately and fully pass on costs amidst the ongoing cyclical slowdown.
“An escalation in US-China trade skirmish will also impart a deflationary impulse as China will seek to channel more exports into this region. Risk of transmission from higher oil onto local fuel prices is limited as official preference will be to keep domestic petrol and diesel costs unchanged to preserve households’ purchasing power.
“Rate differentials are less of a hurdle as equity markets had witnessed bulk of the flows in the past two years, whilst the index inclusion tailwind benefited bonds,” per the report.
