With the much-awaited US-India deal getting announced during the weekend, the Indian rupee’s depreciation is expected to slow down, said experts. However, the extent of recovery remains a question.
When US President Donald Trump imposed a total of 50% tariffs on Indian goods, the currency took a major hit by falling more than 7%. In the last couple of weeks it has recovered from a record low of 92.02, but further appreciation will depend on foreign inflows and the Reserve Bank of India (RBI) intervention.
At an event, Chief Economic Advisor V Anantha Nageswaran said that the rupee will be one of the big beneficiaries of the India-US trade deal.
Reversing the Tariff Shock
“Reduced tariff barriers will boost exports for India particularly against major exporting nations and also improved investor confidence could lure back FIIs and FDIs which in turn will benefit the rupee,” said Kunal Sodhani, treasury head at Shinhan Bank.
He believes that there remains space for appreciation till 89.25 levels, while 91.50 now remains a strong resistance. Seasonality and the trade deal should bolster the rupee during January-March. However, the RBI reserve-building may cap further gains, he added.
The rupee ended at 90.66 against the dollar on Friday. It rallied towards 90.27 on February 3 after the tariff cut announcement. So far in the current financial year, the rupee has declined 6.08% and remains the worst-performing Asian currency. The depreciation has been the highest in three years. However, overall market sentiment has improved.
“Though sentiment has improved post-trade deal, it coincides with a strengthening dollar, and pressuring the rupee. Without fresh inflows, appreciation room stays limited,” said a chief forex dealer at a private bank. Still, he noted one more upside leg is ideal post-joint statement. “If it breaks 90, it could event hit 88.80-89.00, provided actual flows materialise.”
Foreign investors’ net outflows stood at $8.2 billion in FY26 so far, the depository data showed. While rupee’s stability could attract short-term inflows, market participants are of the view that sustained long-term investments will depend on other broader factors too.
“Capital inflows are crucial for the rupee, given India’s persistent trade deficit,” said Anitha Rangan, chief economist at RBL Bank.
She believes that unlike past years, inflows no longer offset high deficits, which now pose a core challenge. “Given the heightened externalities, India needs policies to attract external capital,” she said, adding that the rupee should trade in the range of 90.5 -91.5 in the near-term.
She added that, policies like RBI’s eased FPI debt norms, GCC tax exemptions till 2047, and FDI relaxations are in the right direction.
Overall, the joint statement on the interim trade deal seems favourable for India due to the competitive advantage over other countries now, said experts. The market awaits clarity on Russian oil purchases. While Trump claimed in his post that India agreed to halt them, India has yet to confirm and provide clarity on it.
$500 Billion Commitment
Besides the reduction in tariff and zero tariff on some select items, India intends to buy $ 500 billion worth of US goods over the next five years, including energy products, aircraft and aircraft parts, precious metals, technology products, and coking coal. Experts note this could pressure the rupee if it happens, adding that details are still sketchy at this point.
“The $500 billion deal is on paper now, but I am skeptical about full compliance. There can be changes in the future. If we don’t increase exports significantly and foreign inflows, the rupee could get hurt by this,” said Madhavankutty G, chief economist at Canara Bank.