Indian rupee climbs from 23.9 to dirham - but Trump tariff threats still there

Dubai: The Indian rupee has strengthened against the dirham early today (August 6), at 23.86 from yesterday’s close of 23.9.

For the moment, the rupee’s rise has cooled speculation that it could break the current all-time low of 23.94.

The Reserve Bank of India has decided not to go for an interest rate cut this time, thus holding the rate at 5.5%. This was decided at the Monetary Policy Committee meeting today.

So far this year, the RBI has cut rates by a combined 1% since February. (The cuts were spread over a 0.25% cut in February, another 0.25% in April, and then a 'jumbo' cut in 0.50% in June.)

"The rupee and the Indian stock markets have responded coolly to the RBI move - everyone was expecting a no-cut move," said Neelesh Gopalan, Treasury Manager at a Dubai remittance platform.

"Our forecasts are for the rupee to trade at 23.7-to23.05 levels under the circumstances."

But those circumstances could soon change.

The biggest impact on the rupee will still be from US President Trump, who has threatened ‘additional’ tariffs on India for buying cheaper oil from Russia. And to which India has said it’s not going to stop the deal flow from Russia.

“Trump has already mentioned 25% tariffs on India, which was why the rupee had the sudden drastic drop late last week,” said an FX analyst. “We forecast that the rupee could drop to 24 against dirham unless there is a major intervention from the RBI.”

So far, the Sensex and Nifty are down fractionally. But again, the Trump threats are hanging in the air.

"Indian equity markets have exhibited heightened volatility over the past month," said Foram Chheda of ChartAnalytics.

"The announcement of a 25% tariff triggered a negative reaction across domestic markets. This sentiment has also been reflected in foreign institutional investor (FII) behavior as they have shifted back to net selling after four consecutive months of marginal buying.

"In July alone, FIIs offloaded equities worth Rs476.6 billion in the cash segment."

This is what markets and investors need to worry about. Further US tariffs, even if they are just announcements, could set off a widespread investor panic, especially on foreign investment flows.

"Just 96,285 homes were sold, a steep fall from 120,335 a year ago, indicating increasing buyer hesitancy and market uncertainty. Amid these headwinds, the central bank’s policy choices come with high relevance to initiate a turnaround and arrest further market deterioration.

"A rate cut leading to lower interest rate environment would have particularly boosted the affordable housing segment, which has been under considerable pressure in recent years."

- Anuj Puri, Chairman of Anarock Group