The Weakening Rupee

Instead of intervening to stabilise the exchange rate, let it find its own level

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OWNWARD PRESSURES ON the rupee vis-à-vis the US dollar persist due to President Donald Trump's 50% tariffs on India, which include a penalty for buying Russian oil. Tariffs hit the country's export earnings, curb foreign exchange inflows, and boost demand for dollars in an energy import-dependent economy. Trump's big beautiful bill—with tax cuts and higher spending commitments—will further drive up inflation. With the US Federal Reserve cautious on cutting interest rates, the consequent higher yields on US treasuries will attract inflows from foreign investors who are expected to pull out from emerging markets like India and weaken the rupee. Last fiscal, the Indian currency depreciated 2.1% on year to ₹84.57 a dollar and is further weakening since then. Till early August this fiscal, it declined by 2.9% on year to ₹86.07. The currency unit fell to ₹87.88 last week—not far from its lows of ₹87.95 in February—and closed at ₹87.71 on Tuesday.