Asia’s worst-performing currency is set for a rocky start to 2026
The Indian rupee traded in a narrow range on Monday as stable dollar interbank offers blunted positive signs of improvement in global risk appetite.
Wong Yu Liang | An | Getty Images
The lack of progress on the US-India trade deal, combined with persistent outflows of foreign funds, has put pressure on the US-India trade agreement. rupee It has been Asia’s worst-performing currency this year.
The currency of the world’s fifth-largest economy could fall to 92 against the dollar by the end of March, according to Nomura and S&P Global Market Intelligence forecasts; Any strengthening is largely dependent on a trade deal with the United States. The rupee was last traded at 89.6 against the dollar.
“We believe the rupee is currently undervalued, with correction expected after greater clarity on the US-India trade deal,” said Hanna Luchnikava-Schorsch, head of Asia-Pacific economics at S&P Global Market Intelligence.
The S&P Global unit expects a trade deal to be reached within the next six months.
While trade talks between New Delhi and Washington continue to drag on, India is among the countries with the highest customs duty in the world, at 50 percent; These taxes even dwarf those in China.
After higher tariffs took effect in August, India’s exports to the US fell by nearly 12% in September and 8.5% in October, but rebounded sharply in November, rising 22.6%.
Sonal Varma, Nomura’s chief economist for India and Asia excluding Japan, said the key economic risk is that India could lose momentum in supply chain shifts from firms primarily serving the US market due to persistently high tariffs.
“Prolonged uncertainty has led to foreign portfolio outflows and the weak rupee may impact import costs and inflation,” he added.
However, a weak rupee could make exports more competitive; Low price growth in the country also allows it to absorb the impact of imported inflation due to currency depreciation.
At the beginning of the month, the Indian currency crossed the 90 mark against the dollar, which is an important psychological trigger, and started the year at 85.64 against the dollar. It took less than 15 trading sessions for the currency to cross 91 rupees and reach the dollar mark.
Turning towards foreign investors
Global investors became downward trend Data from securities depository NSDL shows net outflows of more than $10 billion across investment classes in India for most of this year.
Somnath Mukherjee, CIO and senior managing partner of ASK Private Wealth, told CNBC’s “Inside India” program that the main reason for the decline in the rupee is not India’s current account deficit, it is expected to be at a manageable level of 1%-1.5%.
He added that the rupee will remain under pressure until outflows from foreign portfolio investors reverse.
Outflows in Indian equities have been particularly sharp, with foreign portfolio investors being net sellers year-to-date, withdrawing nearly $18 billion as of December 19.
“Rupee depreciation is a double-edged sword for FIIs,” Luchnikava-Schorsch said.
He said this could be a “good entry point for Indian equities” but investors will weigh the negative impact of “prolonged rupee weakness and trade policy uncertainty”, government finances and the overall growth outlook.
India’s central bank at its monetary policy meeting earlier this month confirmed again The policy of allowing market forces to determine the exchange rate reportedly On Wednesday he intervened “aggressively” to stop the currency’s slide.
