The Indian rupee fell sharply on Wednesday, mirroring declines across Asia, after the Chinese yuan weakened to record lows following the implementation of sweeping new U.S. tariffs. At 9:40 a.m. IST, the rupee had depreciated 0.4% to 86.65 against the U.S. dollar (Dh23.61), pressured by broader market jitters and escalating trade tensions.
The offshore yuan hit an all-time low against the dollar on Tuesday, while the onshore version traded near its lowest level since September 2023. In tandem, other Asian currencies posted losses ranging from 0.1% to 0.8% amid investor uncertainty over U.S. President Donald Trump’s new tariff measures, which include a hefty 104% levy on Chinese goods.
India’s central bank, the Reserve Bank of India (RBI), responded to growing economic pressures by cutting its key repo rate for the second consecutive time. In a move aimed at spurring growth, the RBI reduced the benchmark lending rate by 25 basis points to 6.00% and shifted its policy stance from “neutral” to “accommodative.” The decision was unanimous among the six-member Monetary Policy Committee (MPC), composed of three RBI officials and three external experts.
The rate cut comes amid growing concerns that the U.S. tariffs — now extended to several countries including India — could undermine India’s economic recovery. The RBI’s GDP growth projection of 6.7% for FY 2025-26, along with the government’s broader forecast of 6.3% to 6.8%, may come under renewed scrutiny as global trade frictions deepen.
“The escalating trade tensions between the U.S. and China, as well as the broader impact of U.S. trade policies, have amplified risks in the currency markets,” the RBI noted in a statement. These uncertainties have caused increased volatility in foreign exchange markets and widened the divergence between regional currencies.
The rupee also faced headwinds from capital outflows, as foreign investors continued to retreat from Indian equities. So far in April, overseas investors have pulled more than $2.5 billion from Indian stocks, bringing total net outflows for the year to approximately $16 billion.
A trader at a foreign bank noted that Indian corporates have ramped up hedging activity to manage foreign exchange liabilities, while reduced forward premiums signal market caution. The one-year dollar-rupee implied yield fell to 2.31% as U.S. bond yields climbed, making dollar assets more attractive to investors.
As global markets digest the full impact of the new U.S. tariff regime, the RBI is expected to keep a close eye on inflation and capital flows while continuing to support domestic growth through accommodative monetary policy.
