The Indian Rupee dropped to its lowest level in over five months on Thursday, pressured by US President Donald Trump's threat to impose a 25% tariff on the country's exports.

Traders noted that the central bank likely intervened to prevent the currency from sliding further toward a record low.

The Rupee fell to 87.74 against the US Dollar before recovering slightly to 87.56 at the time of writing, marking a 0.2% decline for the day.

Nearing its all-time low of 87.95 recorded in February, the Rupee has depreciated by 2% so far this year, ranking it among the weakest performers in Asia, Reuters news agency reports.

President Trump said on Wednesday that the United States is continuing trade negotiations with India, despite earlier announcing plans to impose a 25% tariff and unspecified penalties on Indian imports starting on Friday.

In response, the Indian government said it is carefully assessing the impact of Trump's announcements and reaffirmed its commitment to achieving a fair trade agreement.

Analysts believe that ongoing trade talks between India and the US could result in a reduced tariff rate.

“The key for markets and our forecast profile for INR is whether a trade deal between India and US is delayed but not denied,” according to Michael Wan, senior currency analyst at MUFG.

ANZ stated that trade-related uncertainty is expected to continue putting pressure on the Rupee, and the Reserve Bank of India will probably intervene to manage volatility, “if not aggressively defend a level for long.”

Furthermore, India’s key stock indices, the BSE Sensex and Nifty 50, both dropped roughly 0.4% during the day.

At the same time, Dollar-Rupee forward premiums fell, as traders attributed the decline to reduced expectations of Federal Reserve rate cuts and increased mid-to-long-term Dollar-Rupee buy/sell swap activity carried out by state-owned banks.