Government 'Keeping Good Watch' as Rupee Hits Record Low Against Dollar
The Indian Rupee fell to a record low, closing at 88.27 against the US dollar, primarily due to the dollar's global strength and concerns over steep US tariffs on Indian goods. Finance Minister Nirmala Sitharaman stated the government is keeping a "good watch" on the exchange rate, noting that the rupee's slide is largely against the dollar and that many other currencies are facing similar pressure. The depreciation follows the recent imposition of a 50% US tariff on Indian goods.
Unpacked:
The 50% US tariff on Indian goods was imposed amid renewed trade tensions, likely due to concerns over trade imbalances, market access issues, or geopolitical considerations. Such tariffs often aim to protect domestic industries or retaliate for perceived unfair trade practices.
A weaker rupee increases the cost of imports, especially essentials like oil, leading to higher inflation and production costs. It can strain household budgets and reduce purchasing power for consumers, while potentially benefiting export-oriented industries by making their goods more competitive abroad.
The rupee’s depreciation is part of a broader trend affecting many currencies due to the global strength of the US dollar and shifts in US monetary policy. Emerging-market currencies are particularly vulnerable when US interest rates are high and investors move capital into dollar assets.
The Reserve Bank of India can intervene by selling foreign currency reserves, adjusting interest rates, or enacting policy measures to attract foreign capital. However, these actions must balance supporting the rupee with maintaining economic growth and controlling inflation.