By Jaspreet Kalra
MUMBAI (Reuters) – The Indian rupee declined to a three-week low on Wednesday, tracking the weakness in the Chinese yuan as sweeping U.S. tariffs came into effect, including a 104% levy on China, and fuelled worries of a slowdown in global growth.
The rupee closed at 86.6875 per U.S. dollar, down nearly 0.5% on the day. It hit a three-week low of 86.71 earlier in the session.
The Reserve Bank of India, meanwhile, cut its key repo rate for a second consecutive time and eased its monetary policy stance, signalling room for more cuts ahead as it looks to boost a sluggish economy in the face of U.S. tariffs.
While the RBI’s cut was widely expected, the change in stance was “slightly dovish” and added slight pressure on the rupee, a trader at a state-run bank said.
The onshore Chinese yuan declined to a 19-month low against the dollar after its offshore counterpart fell to a record low overnight as concerns about trade war escalations stayed front and centre for investors.
China’s central bank will not resort to immediate sharp yuan depreciation to soften the blow from tariffs, sources told Reuters.
“The yuan’s moves and global financial market uncertainty are the key downside risks for the rupee. We believe the RBI is unlikely to engineer any underperformance of the currency,” ANZ said in a note.
India’s benchmark equity indexes, the BSE Sensex and Nifty 50, ended in the red.
Indian government bonds outpaced regional peers as a steep selloff in U.S. Treasuries sparked concerns that hedge funds are unwinding leveraged trades and that investors are dumping even their safest assets and the dollar.
The 10-year U.S. Treasury yield rose as high as 4.5150% in Asia trading.
“The ‘sell America’ scenario is becoming tangible again as Treasuries and U.S. equities are under pressure,” ING Bank analysts said.
India’s financial markets are shut on Thursday for a local holiday.
(Reporting by Jaspreet Kalra; Editing by Savio D’Souza)
