Rupee bleeds red to a new low on greenback demand, slumps against Chinese yuan too

The Indian rupee plunged to a record low, breaching the psychological 88-per-dollar mark for the first time amid mounting fears that US tariffs could undermine the country’s economic growth and strain its balance of payments, further hitting already fragile portfolio inflows, treasury dealers said.

Before closing at 88.19, the rupee fell to 88.31 to the dollar, a level which likely saw the Reserve Bank of India stepping in, said bank treasury officials and currency dealers. “Only at around 88.30 level, there was some presence of the RBI, which helped reverse some early losses,” said a dealer with a mid-sized bank.

The rupee, which had closed higher at 87.62 on Thursday, opened lower against the dollar, mirroring weakness across Asian markets. Strong dollar demand from importers and sustained outflows from domestic equity markets added pressure on the rupee.

The sentiment for the currency was also bearish as India’s benchmark equity indices fell for the third session in a row, while the yield on the 10- year benchmark government bond climbed above 6.60% intra-day in Friday’s session.

The rupee has closed August 0.68% lower, its fourth monthly fall in a row.

Bank treasury dealers said that the market had anticipated intervention from the RBI to stem the slide, particularly around the 87.80-87.81 level. Yet, when the central bank remained on the sidelines, the rupee broke through its previous record low of 87.95, triggering a wave of stop losses and accelerating the decline, they said.

“After 88 was crossed, importers scrambled to cover their positions, and the fall from 88 to 88.30 was within 15 minutes. The RBI likely intervened at the 88.30 level, slightly appreciating the rupee,” said Dilip Parmar, currency research analyst at HDFC Securities.

Experts say the RBI let the rupee weaken to support exports in the face of high tariffs. “The RBI seems to have let the rupee weaken in the face of tariffs as a stimulus to the country’s exports. There will be some appreciation if the market sees some decisive intervention, or else 89.80 looks like the next support level,” said Sajal Gupta, head, forex and commodities at Nuvama.

On Friday, the rupee also fell to a record low against the Chinese yuan. It fell to 12.3862 against the offshore yuan, Reuters reported.

In the last four months, the rupee has fallen by around 6% against the yuan. The yuan-rupee exchange rate is crucial for India’s trade competitiveness, as both countries compete directly in US-bound sectors such as textiles, engineering goods, and chemicals, said Kunal Sodhani, head of treasury at Shinhan Bank.

“A weaker rupee against the yuan makes Indian exports relatively cheaper than Chinese goods, helping to slightly curtail the impact of higher US tariffs and also helps in narrowing India’s trade deficit with China,” he said.