Rupee Relief on Horizon as India-US Trade Deal Nears Completion, Says RBI Governor

The Reserve Bank of India (RBI) Governor Sanjay Malhotra expressed confidence on Thursday that the recent depreciation of the rupee may ease once a forthcoming trade deal between India and the United States is signed. This development brings optimism to markets as the rupee has been Asia’s worst-performing currency this year, falling 3.6%, driven in part by tense trade relations and significant foreign capital outflows from Indian equity markets.

The escalating trade tensions in 2025, triggered by the imposition of a 50% tariff by the Trump administration on Indian goods—half of which was a penalty related to India’s purchase of Russian oil—had severely impacted investor sentiment. This has contributed to the rupee’s decline and India’s record trade deficit of $41.7 billion in October, fuelled by surging gold imports and fewer exports to the US.

Speaking at the VKRV Rao Memorial Lecture at the Delhi School of Economics, Malhotra clarified that the RBI does not target any specific level for the rupee. He attributed the currency's depreciation to increased demand for US dollars and affirmed that the central bank maintains robust foreign exchange reserves to support market stability. “We do not target any level. It is a financial instrument shaped by demand and supply,” Malhotra explained.

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Recent negotiations have seen India and the US nearing a breakthrough on a fair and balanced trade agreement, which is expected to resolve tariff disputes and improve bilateral trade ties. Commerce Minister Piyush Goyal confirmed that the first phase focusing on reciprocal tariffs and market access is close to finalization. This deal aims to elevate bilateral trade from $191 billion to $500 billion by 2030, boosting growth and investor confidence.

The rupee closed at 88.70 against the dollar on Thursday, slightly weaker due to the strength of the US currency and lowered expectations of a US Federal Reserve rate cut. However, the anticipation of the imminent trade deal provides a positive outlook for the rupee and the broader Indian economy as foreign investment inflows are expected to resume.

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