Market News

By Dharamraj Dhutia and Nimesh Vora

MUMBAI (Reuters) - The rupee slipped on Tuesday after Washington confirmed it will impose an extra 25% levy on Indian imports, clouding the outlook for Asia's third-largest economy.

The rupee dropped to 87.80 against the dollar, a three-week trough and within striking distance of its lifetime low of 87.95.

The currency opened weaker and has struggled since, after the U.S. Department of Homeland Security on Monday outlined the procedure to implement the additional tariff on Indian goods starting August 27.

The notice reiterated that the action was in response to India's indirect support for Russia's military incursion into Ukraine.

"Markets were clinging to hopes of a compromise. With that off the table, the rupee's decline was inevitable," a currency trader at a private sector bank said.

Indian goods currently face 25% U.S. duties, among the highest tariff rates imposed by Washington on any major trading partner. Indian equities declined on the day.

The currency and equities are both reacting to the tariff news, and the key to watch now is whether the Reserve Bank of India (RBI) steps in at these levels, said Anil Bhansali, head of treasury at Finrex Treasury Advisors.

India's foreign exchange reserves remain comfortable at $695 billion, he noted.

The RBI will be keen to avoid disorderly moves on a day of heightened sensitivity, especially with the rupee near to lifetime lows. The RBI has a well-established habit of stepping in to curb excess volatility.

The local unit is facing selling pressure, despite the dollar index's decline after U.S. President Donald Trump said he fired Federal Reserve Governor Lisa Cook over alleged mortgage fraud.

Cook's removal comes amid the president's regular threats to fire Fed Chair Jerome Powell.

(Reporting by Nimesh Vora and Dharamraj Dhutia; Editing by Sumana Nandy)