Rupee sees its worst fall in 3 months as Trump tariffs spark global stock rout

Mumbai: The Indian rupee suffered its sharpest one-day decline in nearly three months on Monday, as concerns over US President Donald Trump's sweeping reciprocal tariffs triggered a global stock markets rout, dragging Asian currencies lower.

The rupee closed at 85.8350 per US dollar, down 0.7% or 60 paise, its worst single-day fall since 13 January. Most Asian currencies edged lower, falling 0.2-1.2% against the dollar amid broad market pressure.

India's benchmark equity indexes, the BSE Sensex and Nifty 50, ended about 3% lower each, their steepest one-day fall since June last year.

"Amid global risk-off sentiment triggered by the ongoing trade war, we are witnessing FPI outflows and upward pressure on USD-INR. While the RBI is widely expected to cut rates by 25 basis points, we believe this move will have a muted impact on the rupee. The more decisive driver will be the trajectory of global risk sentiment," said Anindya Banerjee, senior vice-president, Kotak Securities. "Should the risk environment deteriorate further, USD-INR could retest levels around 86.50, while the immediate support lies near 85.30. We also anticipate the RBI to continue its intervention in the forwards market to prevent a liquidity squeeze in the rupee segment," he added.

Read more: Despite tariff heat, policy easing to stay on track

The US has imposed a baseline tariff of 10% on all imports, which became effective on 5 April, while higher levies on some 60 countries, including India, that Trump has dubbed as the 'worst offenders' will kick in on 9 April. The trade war declared by Trump has fanned concerns about a potential global recession.

The fall in the rupee is in sharp contrast to its trajectory in March, which saw the domestic currency strengthen by 2.4% against the US dollar, the largest monthly increase since November 2018. During the same period, the dollar index, which measures the strength of the US currency against a basket of six currencies including the Japanese yen and the British pound, declined by 3.2% due to increasing growth concerns in the US emanating from the proposed tariff plans.

The rupee had hit a three-month high of 84.96 last week, aided by dollar weakness and likely selling of the greenback by public sector banks.

Read more: Will lower tariffs lure back FPIs from other emerging markets?

"The INR, though, remains a relatively better performing currency - as compared to other countries hit harder by the impact of tariffs announcements. Further uncertainty in the global outlook and weak US economic activity may lend weakness to the US dollar, potentially propping up the INR in the near-term, but sharp downward moves in the USD-INR may be capped by RBI intervention. We estimate USD-INR at 84.50 - 86.50 range in the coming months as dust around the tariff uncertainty settles," said Upasana Bharadwaj, chief India economist, Kotak Mahindra Bank.

Traders say that the rupee was not allowed to fall below 85.90 on Monday as there was selling by exporters and possible RBI intervention to control the volatility.

"The best way for both exporters and importers is to hedge their currency risks and sit tight as market risks are very high and one is unable to gauge the movement in the currencies," said Anil Kumar Bhansali, head of treasury and executive Director at Finrex Treasury Advisors LLP.