In a recent analysis, MUFG”s Michael Wan highlighted the implications of the US-India interim trade deal, which includes significant tariff reductions and exemptions. This agreement is seen as beneficial for India”s external economic position, potentially allowing the Indian Rupee (INR) to dip below the 90 mark against the US Dollar (USD) in the short term.
Wan suggests that while there exists a possibility for USD/INR to briefly fall below 90 in the upcoming months, any recovery of the INR is expected to be modest. He projects that the exchange rate could settle at approximately 89.50 by the first quarter of 2026. However, this forecast comes with the caveat that the rate could rise to around 93.00 by the end of 2026, driven by factors such as foreign direct investment (FDI) repatriation and a widening current account deficit.
The interim trade deal between the US and India brings forth favorable conditions, particularly through tariff cuts that may enhance India”s trade dynamics. Nevertheless, Wan indicates that the upward trajectory of USD/INR beyond the initial dip could be constrained, as the anticipated recovery remains shallow.
Despite the positive outlook from the trade agreement, Wan cautions that political resistance in India over certain agricultural concessions could pose challenges. Overall, the details of the trade deal are viewed positively, but the long-term implications for the INR will hinge on various economic factors, including ongoing FDI flows and import requirements.
Investors and market participants should monitor these developments closely, as they may influence trading strategies and currency positions in the context of USD/INR dynamics.
