Rupee slides amid trade tensions; RBI seen playing a calibrated role – News Air Insight

The Indian rupee has been under significant pressure in recent weeks, with levels of 88.4 to 88.6 already tested. Currency experts warn that the domestic unit could face further weakness before stabilising, largely due to global and domestic headwinds.

Speaking to ET Now, Anindya Banerjee drew a striking comparison with the 2013 scenario when the rupee had sharply underperformed its peers. “The wedge in the rupee’s performance compared to its peers is startling because the last time it happened was in 2013,” he said.

Banerjee pointed out that multiple factors are driving the current weakness. “This is exactly the tariff situation, the outflows of FPI — because they have been net sellers since June, close to $4.6 billion flown out. Net FDI flows have also come down dramatically. RBI has been a seller in the spot market, but their rate of intervention has reduced,” he explained.

He added that India’s trade dispute with the U.S. has played a central role. “When there is a trade war, you need to give a cushion to exporters through a weaker currency, and that is exactly what is happening,” Banerjee noted.

What stands out is the scale of the rupee’s underperformance. “If I take the top 26 currencies and compare them against the U.S. dollar, on average they have appreciated by 7-8%. The Indian rupee is down close to 3%. That’s a wedge of 10-11%. The U.S. dollar index is down 12% from 2025 highs. The wedges are anywhere between 10% to 14%,” he said. Despite this, Banerjee remained optimistic: “The macro and political situation is way better than 2013. Once the trade dispute resolves, we can see a sharp appreciation in the rupee.”

On whether the Reserve Bank of India could step in more forcefully, Banerjee suggested the central bank may not act aggressively for now. “As long as the trade war is on, I don’t think RBI will be over aggressive. They will try to contain volatility. If it gets to 89 or above, we can see RBI come in aggressively,” he said.However, he stressed that the central bank’s stance may shift once tensions ease. “We don’t expect the RBI to intervene like it used to till last year. Once the tariff situation resolves, RBI can intervene with the appreciation trend of the rupee,” Banerjee added.For now, market participants remain watchful of global cues and RBI’s next moves as the rupee trades at its weakest levels in years.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)