Rupee Falls For Fourth Month, Hits Fresh Low Against Dollar

The Indian rupee has experienced a sharp slide against the US dollar, breaching the ₹88 mark, a level not seen before. This marked the steepest single-day drop in nearly three months, signalling growing concerns about the economy and international market tensions.

Why Has the Rupee Fallen Against the Dollar?

Several interconnected factors have contributed to this decline:
 

• US Tariff Hike: The United States recently increased tariffs on Indian goods, raising the total burden to 50%, which significantly hit exports in key sectors like textiles, gems, jewellery, and seafood.
   
• Weak Foreign Investment: Foreign portfolio investors have pulled out substantial capital, over $2.4 billion in just a few sessions, adding depreciation pressure.
   
• Global Currency Weakness: The rupee also weakened against other currencies like the Chinese yuan, declining nearly 6% over four months, further indicating broad-based pressures.
   
• Speculative Market Behaviour: Breaching critical technical thresholds, like ₹88, triggered stop-loss orders and speculative trades, accelerating the fall.

Can the Rupee Fall Below ₹88 per Dollar?

To understand this possibility, refer to the below-mentioned table:

Rupee & Key Influencing Factors
 

This table demonstrates how external shocks can influence market dynamics, pushing the rupee lower, while limited central bank defence leaves it vulnerable.

Will RBI Do Something to Revive the Value of the Rupee?

RBI's actions so far suggest a cautious approach:

• Measured Intervention: The central bank has stepped in to cushion extreme volatility, but not to hold the rupee at any fixed level.
   
• Flexible Exchange Rate Policy: India operates a “managed float” system, market-determined rates, with RBI intervening chiefly to curb sharp fluctuations, not to peg the currency.
   
• Strategically Letting Depreciate: Analysts believe RBI may allow gradual rupee depreciation to support export competitiveness in light of ongoing tariff pressures.

Why Are Market Analysts Expecting a Bearish Movement for the Rupee?

Several structural and sentiment-based reasons underpin this outlook:

• Persistent Tariff Risks: The US tariff stance creates sustained uncertainty for India’s export sectors.
   
• Weakened Trade Balance: Falling export revenues and steady imports worsen trade deficit, pushing the rupee down.
   
• Capital Flight Trends: Escalating foreign equity outflows reflect waning confidence, further pressuring the rupee.
   
• Limited RBI Defence: The perception of less aggressive RBI support emboldens speculators to bet on further drops. 

How Is the Falling Rupee Good for Exporters?

Interestingly, a weaker rupee offers certain advantages:

• Improved Export Competitiveness: Indian goods become cheaper in international markets, partially offsetting tariff burdens.
   
• Relative Edge Against China: Depreciation versus the yuan improves Indian exporters' pricing compared to Chinese rivals.

What Has the RBI Done in the Past to Boost the Rupee?

The RBI’s historical interventions include:

• Forex Market Operations: For instance, in early August, the RBI sold dollars through state-run banks to stem rupee weakness near ₹87.95.
   
• Open Market Operations & Communications: The central bank uses policy outlooks and liquidity tools to influence expectations and market stability.

Conclusion

The rupee’s slide past ₹88 per dollar marks a critical juncture amid rising US tariffs, dwindling investor confidence, and global market pressures. While the RBI has taken tactical steps to manage volatility, the broader trend suggests a strategy of gradual depreciation, which may help exporters weather external shocks. However, unless trade tensions ease and capital inflows stabilise, the rupee may continue to face downward pressure.

Keeping an eye on upcoming US economic data, RBI policy shifts, and global risk appetite will be crucial in assessing whether the rupee stabilizes or slides further.