MUMBAI: The rupee fell to a new closing low of 87.8 against the dollar on Tuesday, down 14 paise from Monday’s 87.66, as escalating trade tensions with the US kept markets on edge. The currency slipped to 87.89 during the day, close to the record low of 87.95 hit in Feb, before likely RBI intervention via state-run banks helped limit losses.The slide followed US President Donald Trump’s threat to raise tariffs further on Indian goods over Russian oil purchases. This came on top of last week’s announcement of a 25% duty on all Indian imports and penalties for buying Russian oil and military equipment. Govt said it would take all necessary steps to protect its national interests and economic security.

Equities weakened for the second day, with the sensex ending 308 points lower at 80,710 and Nifty down 73 points at 24,650. Foreign investors sold shares worth Rs 2,567 crore on Monday. Oil & gas and banking stocks led the decline, while auto shares gained on strong July volumes. Persistent foreign outflows and uncertainty over a possible India-US trade deal added to the rupee’s weakness, though lower crude prices and a softer dollar provided some cushion. Brent crude fell nearly 1% to $68 a barrel after OPEC+ agreed to a large output increase for Sept.While the sharp depreciation signals strain in the currency market, economists say it could partly cushion the economy against the tariff impact. A weaker rupee makes Indian goods cheaper in dollar terms, offsetting some of the loss in competitiveness from higher US duties. Exporters gain pricing flexibility, while the recent slide has also unwound the rupee’s earlier overvaluation – its real effective exchange rate was over 8% above fair value late last year. RBI data show the REER stood at 100.36 in June, close to its long-term average.The downside of a weaker currency is higher import costs, particularly for oil and electronics, which can feed into inflation and raise the burden of dollar-denominated debt. Against other Asian currencies, the rupee remains this year’s weakest performer, down 2.6% compared with 6-10% gains in the Korean won, Singapore dollar and Thai baht. The dollar index was at 98.97, down 0.3% on Tuesday.Markets are now watching the RBI’s monetary policy decision on Wednesday for cues. The MPC, headed by governor Sanjay Malhotra, began its three-day meeting on Monday, with traders looking for signals on interest rates and liquidity management.