US to impose 25% tariffs on India - rupee drops to 23.8 against dirham

Dubai: the US is imposing tariffs of 25% on India after lack of progress on a trade deal before the August 1 deadline. The new tariffs are to come into effect August 1, according to US President Trump.

The lowest ever point for the rupee against dirham was 23.94 early February. Now, currency traders believe there could be a strong chance for the rupee to fall all the way to 24 against dirham for the first time.

The Indian rupee has been under tremendous pressure over the last 3 days, and had dropped all the way past 23.8 levels against the dirham.

This is the lowest level the rupee has been since March. (For UAE's Indian expats, this opens up one of the best dirham-rupee exchange levels this year.)

“The imposition of 25% US tariffs from August 1 is likely to affect trade flows across key sectors such as engineering goods, pharma and IT services," said Krishnan Ramachandran, CEO of Barjeel Geojit Financial Services.

"In the near term, exporters may face margin pressure - and increased policy uncertainty. While the overall macro-economic impact may be contained, prolonged tariffs could alter supply chain dynamics and prompt a strategic shift, wherever possible, towards diversified export markets.”

"There has to be some suggestion of a deal in the next few hours - otherwise, the markets are going to get spooked," said a Mumbai-based stocks trader.

The latest US announcement comes after the Indian stock and currency markets closed for the day. "If the 25% had been announced earlier in the day, there would have been a bloodbath," said a stock trader. "Thankfully, Trump didn't do that.

"Expect the Sensex and Nifty to show losses when the markets open tomorrow (July 31) - unless something drastic happens overnight.

"The Indian rupee too will bear the strain - back to 23.9 is a strong possibility."

According to some FX analysts, the INR could test 23.4 levels to the dirham. "The lowest point to date for the dollar to rupee was 87.95 (23.94 to dirham) in February," said Neelesh Gopalan, Treasury Manager at Dubai-based fintech. "If the dollar-rupee drops to 88.02 and then to 88.16 - which is 24 for one dirham - then further weakness is possible."

The Indian stock markets had dropped on the first two days of the week as investors fretted over the lack of progress on announcing a deal with the US.

But yesterday and today, there was a bit of a bounce back, as investors' hopes of an imminent deal announcement rose.

But that's not what they are getting for now - with Trump warning about a 25% hit on Indian exports to the US.

Now, "Sectors that look under pressure are FMCG, auto, metals and commodities given the strength in the dollar," said Milan Vaishnav, founder of ChartWizard.ae. "They are seen relatively underperforming the broader markets.

"Realty sector has been under pressure following layoffs at (tech giant) TCS. It is feared that other companies might also follow the suit."