The Indian rupee has depreciated to 87.7 against the US dollar, hovering near its all-time low of 88.1, recorded on August 5th. This decline is mainly attributed to the escalated US tariffs on India coupled with the anticipation of a dovish stance from the Reserve Bank of India (RBI). In an announcement, US President Trump disclosed a new 25% tariff on Indian imports. This response stems from India's ongoing practice of purchasing and re-exporting Russian oil. Prime Minister Modi has responded by affirming that Indian companies seek out the most advantageous energy deals amidst a challenging economic environment. The new tariffs effectively double last week's initial 25% levy, negatively impacting projections for foreign exchange inflows into India, which is recognized as the fastest-growing major economy.
On the economic policy front, consumer inflation has decreased to 1.55%, which falls significantly below market forecasts and breaches the lower limit of the RBI's inflation tolerance band of 2% for only the third time since the target was set in 2016. Although the central bank maintained the status quo on interest rates during its August meeting, a considerable portion of the market anticipates another rate cut within the year.
