The Indian rupee weakened to a new all-time low against the offshore Chinese yuan on Friday, a move that could boost competitiveness for a segment of exporters in the South Asian nation facing hefty U.S. tariffs.
The rupee dropped to 12.3307 against the offshore yuan on Friday, extending its weekly decline to 1.2% and the monthly drop to 1.6%.
Over the past four months, the Indian currency has tumbled nearly 6% against the yuan.
The rupee's fall versus the yuan reflects the contrasting recent news flow about U.S. tariffs for India and China, according to Gaura Sen Gupta, economist at IDFC FIRST Bank.
Washington imposed an additional 25% tariff on Indian goods this week, doubling the total duties faced by the South Asian nation to 50%.
Meanwhile Chinese goods face a lower 30% tariff from the U.S. with a pause on higher triple-digit duties remaining in place.
The yuan-rupee forex rate matters for India's trade performance, considering that the two economies compete directly in key U.S-bound sectors such as textiles, engineering goods and chemicals.
A weaker rupee against the yuan makes Indian products relatively cheaper than those of Chinese rivals in the export market, partially cushioning the blow from higher U.S. tariffs.
Plus, a weaker rupee against the yuan could help narrow India's trade deficit with China.
The yuan-rupee cross is among the key metrics tracked by the Reserve Bank of India, according to a person familiar with the central bank's thinking. They asked not to be identified since they were not authorized to speak to media.
The central bank did not immediately respond to a request for comment.
The RBI will likely welcome the rupee's drop against the yuan considering that it does not involve the currency weakening "beyond their comfort" versus the dollar, said Dhiraj Nim, FX strategist at ANZ Bank.
"The RBI should anyway be welcoming a weaker rupee per se... that it is relative to the yuan, all the better," he said.
While the rupee has fallen more than 1% against the yuan this week, it has weakened only 0.3% versus the dollar.
Crucially, the rupee has not breached the 88 per dollar mark, considered by traders a key level to hold off intensified depreciation pressure. The rupee's record low is 87.95 hit in February.
Bankers say the RBI's presence has been central to containing the move.
Source Name : Economic Times