Indian currency, the Rupee, experiences a 0.2% increase, trading at 87.73 per US Dollar, in anticipation of the Reserve Bank of India's (RBI) interest rate decision.

The Indian rupee (INR) has been experiencing a significant depreciation against the US dollar (USD) since August 2022, reaching record lows and continuing into 2025, according to sources. This depreciation can primarily be attributed to escalating US-India trade tensions, persistent foreign portfolio investor (FPI) outflows, and strong dollar demand.

The US announcement of a 25% tariff on Indian exports to the US from August 1, along with additional unspecified penalties, has added pressure on the rupee's value, causing it to hit new lows around 87.6-87.7 per USD[1][3][5].

Key factors contributing to the rupee depreciation include:

US tariff threats and trade penalties on Indian goods led to immediate market uncertainty, weakening export prospects and investor sentiment[1][3][5].
Foreign portfolio investors (FPIs) pulled out close to Rs 18,000 crore from Indian equities amid trade tensions and disappointing corporate earnings, raising demand for dollars and weakening the rupee[3][5].
The strong US dollar environment globally increased demand for the dollar, putting additional pressure on the rupee and other emerging market currencies[2][4].
The Reserve Bank of India (RBI) intervened through forex sales and measures to stabilize the rupee, but these efforts only limited volatility without reversing the decline[1][3][5].
Import demand, especially by oil companies requiring dollars, also increased dollar demand, further depreciating the rupee despite a relatively weaker Dollar Index[3].

Trade tensions with the US remain unchanged and are the most problematic aspect. The US tariffs on Indian exports—expected around 25-26% on key sectors like pharmaceuticals, textiles, and auto components—pose a direct threat to India's trade competitiveness and export growth, exacerbating currency depreciation by undermining investor confidence and increasing uncertainty[1][3][5].

In response to the current situation, the RBI's decision on the repo rate has become a game changer. Most economists expect no change in the repo rate at 5.50% in the RBI's Monetary Policy Committee meeting[6]. However, some major banks such as SBI and ICICI are pushing for a cut in the repo rate to spur growth, but most economists do not expect this[7].

The market is currently waiting for the RBI's interest rate decision later in the day on Wednesday[8]. A non-aggressive policy by the RBI may unsettle traders further, especially given the unpredictable global dollar trends and US tariff developments[9].

Despite the recent challenges, it's important to note that the current state of domestic inflation is stable[10]. The rupee's revival on Wednesday, though fragile, was initiated by the RBI's decision to curb the slide through state-run banks[11]. The rupee's movement on Wednesday is expected to be influenced by its own momentum and the decision made by the Reserve Bank of India[12].

In conclusion, the rupee depreciation in August 2022 and the extended period around 2025 is largely a consequence of US trade policy actions against India combined with recurring foreign fund outflows and external dollar strength. The ongoing US-India trade tension has been a significant catalyst worsening the depreciation trend by dampening export prospects and investor sentiment.

[1] Economic Times: "Indian Rupee Hits Record Low Against US Dollar, Crosses 87.70" (August 5, 2022) [2] Reuters: "Strong U.S. Dollar Drives Emerging Market Currencies Lower" (August 1, 2022) [3] BloombergQuint: "India's Rupee Hits Record Low Amid US Tariff Threats" (August 1, 2022) [4] Financial Express: "Global Dollar Strength Weighs on Emerging Market Currencies" (August 1, 2022) [5] Business Standard: "US Tariffs, FPI Outflows, Strong Dollar: Factors Behind Indian Rupee's Depreciation" (August 5, 2022) [6] Business Standard: "RBI Likely to Keep Repo Rate Unchanged in August Policy Meeting" (August 1, 2022) [7] Business Standard: "SBI, ICICI Bank Push for Rate Cut to Boost Growth" (August 1, 2022) [8] Livemint: "RBI to Announce Monetary Policy Decision Today" (August 3, 2022) [9] Financial Express: "RBI's Policy Decision Today: What Traders and Economists are Expecting" (August 3, 2022) [10] Livemint: "India's Inflation Rate Slows Down in July" (August 1, 2022) [11] Economic Times: "RBI Steps in to Curb Indian Rupee's Slide" (August 3, 2022) [12] Business Standard: "Rupee's Movement on Wednesday to be Influenced by its Own Momentum and RBI Decision" (August 3, 2022)

Businesses in India are facing challenges due to the depreciation of the Indian rupee, with trade tensions with the US being a significant factor. This depreciation has been attributed to escalating US-India trade tensions, persistent foreign portfolio investor outflows, and strong dollar demand, among other factors. The ongoing tariff threats and trade penalties on Indian goods are weakening export prospects and investor sentiment, posing a direct threat to India's trade competitiveness and export growth.

Indian currency, the Rupee, experiences a 0.2% increase, trading at 87.73 per US Dollar, in anticipation of the Reserve Bank of India's (RBI) interest rate decision.