Indian Rupee Exchange Rate Under Pressure from Dual Impact of Foreign Outflows and Deficits

The Indian Rupee faces multiple challenges. Although the signing of the US-India trade agreement initially brought optimistic expectations to the market, several economists point out that the positive impact of the agreement may be limited, and the Rupee could continue to weaken through 2026, potentially falling to the 94 level against the US dollar.

Agreement Effects Insufficient to Support the Exchange Rate

Dhiraj Nim, an economist and foreign exchange strategist at ANZ Bank India, states that the US-India trade agreement indeed removes some relative barriers for India entering the US market, which nominally provides positive support for the Rupee. However, this move is unlikely to counteract the main drivers of the current downward trend in the exchange rate. Analysts believe that structural factors are dominating the Rupee’s movement, and superficial policy benefits are insufficient to reverse deep economic pressures.

Foreign Capital Outflows and Current Account Deficit Double as Obstacles

The fundamental drivers pushing down the Rupee are the increasing outflows of foreign investment and the widening current account deficit. Foreign capital withdrawal reflects a decline in global risk appetite, while the current account deficit indicates structural issues in India’s trade of goods and services. These two forces compound each other, creating a downward pressure on the Rupee that is difficult to break through. Economists expect that in the short term, these factors are unlikely to see significant improvement, and the Rupee’s depreciation pressure will persist.