INR sinks to all-time low as Trump’s tariffs send jitters across global markets

The Indian rupee hit a record low during early trade on February 3, falling to over 87 against the US dollar, compared to its previous close of 86.6162.

This decline came in the wake of a surge in the dollar index, following the announcement of US tariffs on several nations.

The dollar index, which tracks the value of the US dollar against six major global currencies, rose to 109.825 in early trade, up from 108.370 in the previous session.

The tariffs have led to crashes across crypto and equity markets.

India’s benchmark Nifty 50 was also down 0.79% to trade at 23,295.75 on Monday.

Investor sentiment has been impacted by concerns over higher inflation after the US imposed new tariffs over the weekend.

The market decline comes amid worries that the Federal Reserve may delay potential interest rate cuts.

Trump’s tariffs fuel the dollar’s strength

US President Donald Trump’s announcement on January 31 that the US would impose a 25% tariff on imports from Mexico and Canada and a 10% tariff on goods from China beginning February contributed to the stronger dollar.

During the signing of executive orders, Trump dismissed any possibility of delaying the tariffs, stating, “No, no. Not right now, no.”

Trump also stated that the tariff on Canadian oil would be 10%, in contrast to the 25% tariff on other goods from the country, but warned that wider tariffs would be applied to oil and natural gas by mid-February.

Outflows from Indian equities have further weighed on the Indian rupee, with the currency being affected by foreign institutional investors (FIIs) potentially increasing selling activity due to a stronger dollar.

In the last 30 days, FIIs have sold Indian equities worth over ₹86,000 crore (around $10 billion).

Finance minister defends INR’s performance

In response to criticism regarding the rupee’s depreciation, Finance Minister Nirmala Sitharaman on Sunday dismissed concerns.

In an interview with the Indian news agency PTI, she emphasised that the rupee’s weakness is primarily due to the strengthening US dollar.

She stressed that India’s macroeconomic fundamentals are strong.

Sitharaman also acknowledged the 3% depreciation of the rupee in recent months, noting that while it makes imports more expensive, she rejected criticisms of widespread rupee weakness.

She reiterated that the currency’s stability against other global currencies is a testament to India’s strong economic fundamentals.

The rupee has faced pressure in recent months.

Several factors, including the widening trade deficit and the surge in the dollar index due to hints from the US Federal Reserve about fewer rate cuts in 2025, have contributed to the rupee’s decline.

To defend the rupee from further sharp declines, the Reserve Bank of India (RBI) is reported to have spent $77 billion from its foreign exchange reserves, bringing India’s foreign reserves to $629.557 billion in January, down from $701.176 billion on October 4, 2024.

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