Impact of US Tariffs on the Indian Rupee
The Indian rupee is under significant pressure due to recent economic developments in the global market, particularly related to the US economic policies.
Key Factors Affecting the Rupee
- US Tariffs: The announcement of an additional 25% tariff by the US on buying Russian oil has intensified economic pressure.
- RBI Intervention: The Reserve Bank of India (RBI) is actively engaging in the forex market to stabilize the rupee.
- Performance Against Asian Currencies: The rupee has performed poorly in comparison to other Asian currencies due to varying US tariff impacts.
- Increased Dollar Demand: This demand is driven by crude oil imports and capital flight from Indian equities.
Current Economic Dynamics
- The global price of oil and stock indices remain stable despite the tariff impact, which limits the rupee's descent.
- The rupee is fairly valued by the real effective exchange rate, with some room for depreciation to adjust to international trade changes.
- India's Exchange Rate Management: The strategy focuses on addressing volatility rather than maintaining a specific rupee level. Reduced dependence on forex reserves to defend the rupee.
Consequences of Rupee Depreciation
- Rupee depreciation is seen as inevitable and can be managed to enhance India's export competitiveness, particularly in services and remittances.
Broader Implications
- US inflation adjustments and a slowing economy impact global energy demand and capital flows, influencing rupee movement.
- Potential shifts due to US intentions to stop Indian access to Russian crude oil, affecting oil prices and import costs for India.
- Unclear developments regarding Chinese purchases of Russian oil.