Rupee drops to record low on RBI rate cut bets, stop losses

Rupee drops to record low on RBI rate cut bets, stop losses

The Indian rupee weakened to a record low on Wednesday as a sharp decline in the afternoon triggered stop losses amid a prevailing bearish bias on the currency and as traders positioned for a potential rate cut later this week.

The rupee weakened to 87.4875 against the U.S. dollar before closing at 87.4650, down 0.4% on the day.

The currency has declined over 2% so far in 2025 and is the worst performer among major Asian currencies. Persistent foreign outflows, uncertainty surrounding U.S. trade tariffs and expectations of domestic rate cuts have all weighed on the rupee.

Dollar sales by state-run banks near the 87.25 level offered support to the rupee earlier in the session but the currency fell sharply in the afternoon, triggering stop losses which aggravated its decline.

Dollar demand from foreign banks and importers also pressured the currency, a trader at private bank said.

"Since its (USD/INR) rise above 87, there is some panic buying happening from importers," the trader said.

The rupee had declined past 87 on Monday as U.S. President Donald Trump's tariffs on Canada, Mexico and China rattled global markets. The next day brought some reprieve for the currency as levies on Canada and Mexico were delayed.

The dollar index was down 0.4% on Wednesday, while most Asian currencies gained but that did little to help the rupee with traders anticipating a 25-basis point rate cut by the Reserve Bank of India on Friday.

"While we believe RBI has become more tolerant of FX depreciation, as its focus has shifted towards supporting growth, the global backdrop remains fluid and, at this juncture, the RBI may err on the side of caution," Nomura said in a note.

Although the brokerage expects a 25-bp reduction this week, it said that the chances of a "dovish surprise" via an outsized rate cut or a change in stance, remain low.