Michael Wan from MUFG interprets the recently detailed interim trade agreement between the US and India, which includes tariff reductions and exemptions, as beneficial for India's external position. He anticipates that the USD/INR exchange rate could briefly dip below 90 in the coming months, though he expects the Indian Rupee's recovery to be moderate. MUFG projects the USD/INR to reach 89.50 in the first quarter of 2026 before climbing back to 93.00 by the end of that year due to factors like foreign direct investment repatriation and expanding trade deficits.
The announced tariff reductions are seen as advantageous, but the currency's gains might be limited. "The US and India have shared more insights into their interim trade deal. We view this development positively and predict the USD/INR will stand at 89.50 by March 2026 and 93.00 by December 2026," stated Wan.
He further commented, "There is a strong possibility for USD/INR to fall below the 90 mark in the next few months, though the recovery is expected to be modest, reaching 89.50 in the first quarter of 2026." However, he also foresees the USD/INR rate increasing to 93.00 by the fourth quarter of 2026, influenced by ongoing FDI repatriation and import demands amidst a widening current account deficit.
Despite the overall positive outlook, Wan acknowledges the potential for political resistance within India concerning some agricultural concessions included in the deal.