Rupee Plunges Below 87, Sensex Slumps Amid Trump's Tariff War
The Indian rupee experienced a significant plunge, breaching the 87 mark to hit a record low of 87.28 on Monday. This sharp decline coincided with a slump in the Sensex, both triggered by US President Donald Trump's announcement of tariffs on imports from major trade partners, igniting fears of a global trade war.
Rupee's Performance
The rupee closed at 87.19, marking a drop of 58 paise from its previous close. This represents the rupee's largest single-day fall in two weeks. Market analysts suggest that the Reserve Bank of India (RBI) intervened through public sector banks to prevent further depreciation. Speculation is rife that the RBI may be allowing the rupee to adjust in line with other Asian currencies.
Other currencies also felt the impact, with the Mexican peso dropping more than 2% to reach a nearly three-year low.
Market Indices
The Sensex declined by 319.2 points (0.41%) to settle at 77,186.7, while the Nifty index fell by 121.1 points (0.52%) to 23,361. The prospect of US tariffs is expected to dominate currency market trends throughout the week.
Foreign Investment and Global Factors
Foreign Portfolio Investors (FPI) net sales amounted to Rs 1,327 crore, contributing to the market pressure. The dollar index rose 1.01% to 109.46, indicating a strengthening dollar. Brent crude also gained, increasing by 1.41% to a price of $76.74 per barrel.
According to analysts, a negative bias looms for the rupee due to the strong dollar, exacerbated by continued selling from foreign institutional investors in the equity markets.
Analysts' Perspectives
Ashhish Vaidya, head of treasury at DBS Bank, noted that investors are concerned about the impact of US tariffs on global trade, leading to a potential shift towards more bilateral deals. He also suggested that the dollar could oscillate as new information emerges, possibly reaching 114 before a pullback. However, if investors realize the tariffs could harm both other countries and the US economy, the dollar could weaken.
Madan Sabnavis, chief economist at Bank of Baroda, raised the question of how much lower the rupee can go. He emphasized the crucial role of the RBI in managing the situation, stating, "The question is how much lower the rupee can go. It depends largely on what RBI will do. There is already panic, with importers rushing to book dollars, thus increasing demand. Will RBI sell dollars now, or let the market decide?" Sabnavis also pointed out the tricky balance between managing rupee movements and maintaining liquidity, as selling dollars would drain liquidity. "All eyes are on RBI now for monetary action," he added.
Global Currency Movements
The Canadian dollar dropped to its lowest level since 2003, and the euro neared parity with the dollar. Trump's hints at tariffs on European goods have also led to a global stock market downturn. Bitcoin prices fell, while crude oil prices gained, and industrial metals suffered losses.
Key Points
- Rupee hits record low of 87.28 amid trade war fears.
- Sensex and Nifty indices also decline.
- RBI intervention speculated to prevent further depreciation.
- Analysts watch RBI's monetary action closely.
- Global currency markets also affected by Trump's tariff moves.
The unfolding situation continues to keep investors and economists on edge as they await further developments and potential policy responses.
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