Indian rupee may open close to 88-mark against US dollar as Trump announces 25% tariffs on India

In a post on Truth Social, Trump described India as America's "friend" but added that it will face 25 percent tariffs plus a penalty for buying Russian military equipment and oil. The US President reiterated that India has among the "highest tariffs in the world".

"Remember, while India is our friend, we have, over the years, done relatively little business with them because their Tariffs are far too high, among the highest in the World, and they have the most strenuous and obnoxious non-monetary Trade Barriers of any Country," Trump said on his social media platform.

He hit out at India and China for dealing with Moscow at a time when "everyone wants Russia" to stop the war in Ukraine.

Goenka noted that the new tariff regime is much harsher than the market had anticipated. “The market was pricing in a tariff rate lower than 20 percent, which would still have left India relatively competitive within the Asia-Pacific region,” Goenka said. “At one point, India was considered a frontrunner for a favourable trade deal. That expectation has now been completely upended.”

On a falling spree

The domestic currency in the last few weeks has been under pressure due to various reasons such as persistent demand for the US dollar from both traders and hedgers, substantial selling of domestic equities by foreign institutional investors, and ongoing uncertainty surrounding the prospective US-India trade deal has fostered negative market sentiment and putting continuous downward pressure on the rupee.

According to the Bloomberg data, Indian rupee has depreciated 0.83 percent in last two weeks.

On a year-to-date basis, the local currency is under pressure and worst performing among Asian peers. It is down 3.25 percent, Bloomberg data showed.

“This is not the last statement and we expect more drama to unfold in coming days. We could therefore see major gyrations. We encourage importers, exporters and all with foreign currency exposure to analyze the impact on business in their respective sectors and adjust hedge ratios prudently,” Goenka said.

Likely step in by RBI

With the rupee under acute pressure, analysts expect the Reserve Bank of India (RBI) to intervene in the currency markets to manage volatility and ensure an orderly depreciation.

Usually, during the heightened volatility, the central bank intervenes in the forex market, either in spot or forward market, to curb the excess volatility.