US Tariff Threat Keeps Indian Rupee Under Pressure Ahead of RBI Rate Decision
MUMBAI, August 6, 2025 — The Indian rupee is poised to continue facing downward pressure ahead of the Reserve Bank of India’s (RBI) upcoming interest rate announcement on Wednesday, as heightened tensions from fresh tariff threats by the United States add to market concerns. After approaching a record low, the rupee remains vulnerable amidst geopolitical and economic uncertainties.
Rupee Edges Close to Historic Lows
On Tuesday, the rupee weakened to as low as 87.8850 against the US dollar, just shy of its all-time low of 87.95 touched earlier this year in February. The one-month non-deliverable forward market indicates that the rupee will likely open slightly weaker on Wednesday from Tuesday’s close of 87.80. Traders cited the US administration’s renewed warnings of substantial tariffs on Indian imports — specifically linked to India’s continued purchases of Russian oil — as a key factor aggravating currency depreciation.
Intervention by the Reserve Bank of India
Despite the pressure, the rupee narrowly avoided breaching a new record low thanks to intervention by the Reserve Bank of India. Market sources reported that the central bank likely sold US dollars through state-run banks to support the rupee’s value and calm nerves. An FX trader at a private bank noted, “The RBI probably wanted to avoid headlines about the rupee hitting a new low on the same day President Trump was escalating tariff threats.”
Key exchange rate levels to watch remain in the 87.90 to 88 zone, with analysts suggesting that should the RBI cut rates in its policy meeting, the rupee could weaken further and the central bank might tolerate some depreciation.
Expectations Ahead of RBI Policy Meeting
A Reuters poll of 57 market participants shows that nearly three-quarters expect the RBI to maintain the policy interest rate at 5.50%. About one-quarter predict a modest 25 basis point cut, following a larger-than-expected 50-basis point reduction in June. Major banks such as Citibank, ANZ, DBS, State Bank of India (SBI), and ICICI Bank are among those forecasting a rate cut, with SBI advocating a 25-bp reduction in August citing the lagged effect of monetary policy and risks of economic slowdown.
SBI analysts commented, “Postponing a rate cut until inflation falls further or growth weakens more visibly could result in deeper and more persistent economic damage.” They recommend “continual frontloading” of rate cuts to support growth.
Additional Market Indicators
Several other economic indicators underscore the challenging environment:
- The one-month non-deliverable forward for the rupee stood at 87.94, with the onshore forward premium at 11.25 paise.
- The US dollar index climbed to 98.78.
- Brent crude futures rose 0.6% to $68.10 per barrel.
- The 10-year US Treasury yield held steady near 4.22%.
- According to NSDL data, foreign investors sold a net $224.9 million of Indian equities on August 4 but purchased $45.9 million in Indian bonds on the same day.
Implications for the Indian Economy
The combination of external pressures, including the threat of increased US tariffs, sustained crude price movements, and the RBI’s cautious stance on monetary policy, has created a delicate balancing act for policymakers. Market participants will closely monitor the RBI’s decision for signals on managing inflation, stimulating growth, and defending the rupee amid external economic challenges.
As the RBI’s rate announcement approaches, investors and businesses remain attentive, as the central bank’s approach will be pivotal in steering the rupee’s trajectory and, more broadly, India’s economic momentum in the months ahead.
Reporting by Nimesh Vora; Editing by Sonia Cheema
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