Rupee sinks further in offshore trade after Trump’s 25% tariff punch

The rupee weakened further in offshore trade on Wednesday after US President Donald Trump formally announced a 25% tariff on Indian imports starting Friday, sending ripples across currency market.

The announcement came shortly after the rupee fell to a five-month low in onshore trading on Trump’s earlier threat that India may face 20%-25% tariffs, settling at 87.42 per dollar.

In the offshore non-deliverable forwards market, the rupee slipped further to 87.75 per dollar post Trump’s declaration, raising the likelihood of the Indian currency breaching the crucial 88-per-dollar mark—its weakest level on record.

“Remember, while India is our friend, we have, over the years, done relatively little business with them because their tariffs are far too high,” Trump said on Truth Social. He accused India of having “the most strenuous and obnoxious non-monetary Trade Barriers of any country.”

The 25% tariff is only marginally lower than the 26% duty Trump had previously announced in April, which was deferred until August 1. This time, it appears the levy will go into effect without delay.

There are expectations that unless the Reserve Bank of India intervenes forcefully, rupee may breach all-time low.

Impact on stock markets

Indian markets are expected to react negatively, said Nilesh Shah, Managing Director of Kotak Mahindra AMC. “Despite the unpredictable nature of US policymaking, there was still hope for a deal, especially given strategic alignment. Markets will now hope for a 'TACO' trade — Tariff Adjustment through Constructive Outcomes,” he said.

Experts noted that the tariff rate imposed on India is higher than those levied on competitors such as Vietnam, Indonesia and the Philippines. This puts Indian exports, especially in labour-intensive and electronics sectors, at a disadvantage.

"The currency market had clearly priced this eventually as the USDINR pair moved by more than 70 paise today," Garima Kapoor, Economist and Executive Vice President, Elara Capital said.

While a full breakdown of product categories remains awaited, the inclusion of pharmaceuticals—where the US accounts for over 30% of India’s exports—could be a fresh blow to the sector.

If a deal is not reached by September or October, economists estimate that India’s GDP growth could take a 20 basis point hit, she added.

According to Feroze Azeez, Joint CEO, Anand Rathi Wealth Limited, the overall trade and investment relationship between India and the US still has room for improvement and is not yet in a worrisome zone. The Indian market is currently being driven largely by domestic investors, and FIIs are almost 85% short.

"A major sell-off is not expected. Some volatility is likely, any dips wil be buying opportunities for investors with even 2-3 year time frames as we have already had a 10 month time correction," he said.