The Indian rupee faced significant downward pressure on Tuesday, August 5, 2025, primarily due to renewed trade tensions between the United States and India. Escalating tariff threats from the U.S. administration, specifically from President Trump, have shaken market sentiment and raised concerns about potential foreign outflows.
The rupee opened weaker at 87.85 against the dollar compared to its previous close of 87.6550, and it depreciated further to 87.95 in early trade. This level is just above the currency's all-time low of 87.95, which was touched in February. The threat of breaching this record low loomed large, particularly as the non-deliverable forward market indicated a potential weakening past the 88 level.
Market participants believe that the Reserve Bank of India (RBI) intervened to prevent the rupee from plummeting to an all-time low. Forex traders noted suspected RBI action around the 87.75 level, which helped to curb volatility and stabilize the currency. A senior FX trader at a private bank mentioned that the RBI stepped in to cap the move when it appeared the rupee would break past 88 at the open.
President Trump's recent statements regarding potential increases in tariffs on Indian goods, especially concerning India's continued purchase and resale of Russian oil, have intensified pressure on the rupee. These trade tensions have created worries about further rupee depreciation and potential outflows from Indian equities. The Indian Ministry of External Affairs has responded by stating that it will take all necessary steps to protect India's national interests and economic security.
Concerns persist that the rupee may remain under pressure throughout the week, especially given the uncertainty surrounding trade relations and the possibility of further tariff announcements. Moreover, the maturity of the RBI's $5 billion dollar-rupee buy-sell swap is expected on August 4, which traders anticipate will keep the currency trading near record lows.
The RBI's interventions in the forex market are crucial for maintaining a stable exchange rate and facilitating trade. Besides direct intervention, the RBI uses monetary policy tools to manage inflation and influence the rupee's value. Higher interest rates typically strengthen the rupee by attracting foreign investment, while managing liquidity and short-term interest rates also contributes to stability.
External factors significantly influence the Indian rupee, including crude oil prices, the value of the U.S. dollar, and foreign investment flows. Geopolitical events and trade dynamics also play a vital role in shaping the rupee's trajectory.
Despite the current challenges, the RBI's proactive measures have provided some support to the rupee, preventing it from hitting a new record low. However, the currency remains vulnerable to ongoing trade tensions and global economic factors, necessitating continuous monitoring and strategic interventions.
