Trump Tariff Impact: Rupee Set For Volatile Open, RBI Likely To Intervene

The Indian rupee is likely to open on a weak note on Thursday after logging its sharpest single-day fall in nearly three months, with traders expecting the Reserve Bank of India to step in to prevent a breach of the critical 88-per-dollar mark, according to four people with knowledge of the matter.

The development comes as US President Donald Trump announced a 25% tariff on Indian exports on Wednesday ahead of the Aug. 1 deadline. Trump also hinted at further unspecified penalties linked to India's continued imports of Russian military equipment and energy.

"Sentiment for the rupee is clearly negative in the near term," Ritesh Bhansali, deputy chief executive officer of Mecklai Financial Services, told NDTV Profit.

"It's not just the tariff news, but also crude and FDI outflows. That said, I don't expect a runaway depreciation as RBI is likely to step in around the 88 mark to cap volatility," he said.

Traders expect the rupee to open between 87.75 and 88-per-dollar level and see the RBI intervention kicking in near 88, both to prevent panic. They expect the rupee to settle between 87.5 and 87.6 through the session.

"India, it seems, has got the most unfavourable outcome, which was not priced in at all," Abhishek Goenka, chief executive officer of IFA Global, said. "There is uncertainty around the penalty that would be imposed for procuring crude from Russia."

"This will likely keep markets on the edge. We may see the rupee continue weakening. Implied rupee spot is already close to all-time lows in non-deliverable forwards market," Goenka said.

On Wednesday, the rupee logged its biggest single-day fall since May 8 and settled at a five-month low to 87.42 a dollar, sharply down from 86.81 a dollar on Tuesday. This was because of continuous dollar buying by foreign portfolio investors, traders said.

Dollar buying by overseas investors and strong demand from oil marketing companies triggered stop-losses on short dollar bets. But likely dollar sales by exporters and the Reserve Bank of India capped further weakness, they said.

Some traders said the central bank’s interventions were visible through the day on Wednesday but mild, likely calibrated to support exporters amid trade headwinds.

A lot will depend on how India responds. Whether there are back-channel negotiations and some sort of compromise is arrived at resulting in rates being revised or India takes a tough stance and announces some countermeasures of its own, Goenka said, adding that the second scenario would be much more negative for the rupee.

Rupee could remain under pressure unless there is a turnaround and the tariff rate is revised significantly lower. This is because the measures, if implemented, will have major negative implications for India's balances of payments.

While the direct impact will be on the current account, which will be seen over months, the secondary impact will be on the capital account in terms of outflows from equity markets, which could be more immediate as it is driven by sentiment, Goenka said.

Bank dealers believe that the rupee's current slide is being driven more by capital account concerns rather than current account pressures.

It’s more about FDI outflows and equity weakness, if the equity sell-off continues, the rupee could face further heat, a bank dealer said.

While the near-term weakness could spill over, analysts expect a stabilisation toward the end of the week, especially as large IPO inflows through NSDL and other counters pick up. "The pressure is real, but it’s temporary," Bhansali said.

Markets will also closely watch the outcome of the US Federal Reserve’s policy decision later in the night, which could further sway the dollar index and emerging market currencies, including the rupee.

The US Federal Open Market Committee is widely expected to keep the federal funds rate target range unchanged at 4.25–4.50%.

According to the CME FedWatch tool, traders expect a 98% chance of the US Fed maintaining a status quo. Commentary from the US Fed Chairman Jerome Powell will also set the tone for market opening on Thursday.

From the tariff announcements, broader implications are expected across the MSME export sector, which could face pricing challenges, and bond markets, where softening inflation and weaker growth expectations may offer some support.