The Indian rupee rose 0.1% to close at 87.73 against the US dollar following the Reserve Bank of India's decision to maintain the repo rate at 5.50% with a neutral policy stance. This uptick comes after the currency hit an all-time low on Tuesday, closing 22 paise lower at 87.88.

RBI Monetary Policy Decision

The RBI's six-member Monetary Policy Committee (MPC), led by Governor Sanjay Malhotra, voted unanimously to hold rates steady. This decision was in line with market expectations and helped support the rupee.

Factors Influencing Rupee Movement

Several factors are influencing the rupee's movement:

• Weakening US Dollar: A softening greenback in the global market has contributed to the rupee's gains.
• Rising Crude Prices: An increase in global Brent crude prices is limiting further gains for the rupee. Brent crude rose 0.62% to $68.06 per barrel.
• Foreign Institutional Investor (FII) Outflows: Continued selling by FIIs is putting pressure on the Indian currency. FIIs offloaded equities worth ₹22.48 crore on a net basis on Tuesday.
• US-India Trade Tensions: US President Donald Trump's renewed tariff threats on Indian goods have added pressure on the rupee.

US Tariff Threats

The currency faces pressure from a 25% US tariff on Indian goods set to begin Friday. President Trump has warned of additional substantial levies due to India's oil imports from Russia.

Market Outlook

Market signals suggest the rupee may breach the 88-mark next week due to tariff threats. The currency had declined 1.18% in the week through August 1, marking its sharpest weekly fall in nearly three years, and would likely have hit record lows without central bank intervention.

Analysts note that avoiding rate cuts helps prevent further currency weakness that could result from foreign capital shifting to higher-yield markets. India recorded net foreign outflows of $800 million in the current financial year through July 31, primarily from debt segment outflows.

Global Market Indicators

Key indicators in the global market include:

Domestic Equity Markets

In parallel to the currency movements, Indian equity markets showed positive trends:

Market participants will be closely monitoring the impact of the RBI's policy announcement and ongoing trade tensions on the rupee's trajectory against the US dollar.

The Indian rupee fell 0.20% to close at 87.80 against the U.S. dollar on Tuesday, reaching an intraday low of 87.89, just short of its all-time low of 87.95 hit in February. The decline followed President Trump's renewed threat to substantially raise tariffs on Indian goods, citing India's continued purchases and resale of Russian oil.

Trump's Threats and Trade Tensions

Trump announced plans to impose a 25% tariff on Indian imports, despite ongoing trade negotiations. This unexpected move has sent shockwaves through the Indian financial markets and raised concerns about the potential impact on the country's export-oriented sectors.

The Reserve Bank of India intervened through state-run banks to prevent the currency from breaching record lows. India's foreign ministry responded that it would take necessary steps to protect national interests and economic security.

Foreign Investment and Market Outlook

Traders warn that persistent foreign outflows may accelerate if trade talks stall, with the RBI's upcoming interest rate decision potentially influencing the currency's direction.

Forex analysts expect the daily trading range for the rupee to fluctuate between 87.50 and 88.25 against the US dollar. The currency market remains on edge as traders closely monitor developments in India-US relations and global economic factors.

The combination of geopolitical tensions, trade uncertainties, and fluctuating global markets presents a challenging environment for the Indian rupee. Market participants will be keenly watching for any signs of diplomatic resolutions or policy responses that could influence the currency's trajectory in the coming days.