Rupee Hits Record Low Amid Global Trade Tensions

The Indian rupee plunged to a fresh all-time low, breaching the 87/$1 mark on Monday, as escalating global trade tensions triggered a wave of risk aversion. The sharp decline was set off by US President Donald Trump’s decision to impose hefty tariffs—25% on Canada and Mexico, and 10% on China—rekindling fears of a disruptive global trade war.

In a swift retaliatory move, Canada and Mexico imposed duties on US exports, adding to the uncertainty in global markets.

Trump’s aggressive trade agenda, aimed at reducing the US trade deficit and bolstering domestic manufacturing, has far-reaching implications. While intended to protect American industry, such protectionist measures risk stoking inflation, which could prompt the Federal Reserve to hold interest rates late next week. This dynamic was immediately reflected in currency markets: the US dollar surged, pushing the euro down to 1.0224, the pound to 1.2261, and the yen to 155.54. The dollar index rose to 109.77, with the US 10-year Treasury yield holding firm at 4.4980%. 

Asian currencies were equally affected. The Chinese yuan depreciated 0.2% to 7.3551, the Indonesian rupiah weakened 0.9% to 16,448, and the South Korean won slipped 0.8% to 1,470. 

For India, the rupee’s depreciation reflects the ripple effects of global economic turbulence rather than any heightened domestic economic frailties. However, having already fallen over 3% in the past three months, the rupee continues to face downside risks. The immediate resistance is at 87.50, and if global pressures persist, it may test the 89-90 range by the end of March.  

Despite the rupee’s sharp fall to a record low, the Reserve Bank of India likely refrained from aggressive intervention, reflecting its recent shift towards a more market-driven approach. However, unchecked depreciation could strain capital flows and threaten financial stability. The RBI’s strategy will likely focus on balancing export competitiveness with macroeconomic stability.

The recent Union Budget introduced measures to stimulate consumption to support growth momentum. However, attention now shifts to the Reserve Bank of India’s policy meeting on Friday. The central bank faces a delicate balancing act: while rate cuts could spur growth, they may also trigger capital outflows, exacerbating pressure on the rupee.

Global economic conditions remain precarious. The dollar's strength reflects not just US policy shifts but also broader anxieties over trade and growth. The rupee’s trajectory will depend largely on external developments, including US monetary policy, evolving trade dynamics, and shifts in investor sentiment.

The resurgence of trade protectionism threatens to reshape the global economic landscape. Beyond currency fluctuations, it risks disrupting supply chains, dampening corporate profits, and altering inflation trajectories. If retaliatory measures escalate further, the world could face economic turbulence reminiscent of past trade conflicts. The rupee's slide is not a sign of India’s economic weakness but a barometer of rising global uncertainty.