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Informist, Monday, Aug. 4, 2025

MUMBAI – MUFG Bank sees rupee weakening to 86.50 a dollar by the end of 2025-26 (Apr-Mar) owing to US President Donald Trump's imposition of 25% tariff on India along with an additional penalty. The foreign bank earlier saw rupee at 84.00 a dollar by FY26-end.

"Key to our forecast change is that the reciprocal tariff rate of 25% for India was a downside surprise relative to our previous assumption that India strikes a trade deal with the US with tariffs below 20%," the report, authored by MUFG Bank's Senior Currency Analyst Michael Wan, said. "In addition, several other countries which compete directly with India across a range of sectors also received lower tariff rates, and so competitive advantage for India's export sector could be eroded to some extent if these proposed tariff rates stick."

While there will likely still be a trade deal between India and the US, the chance for former to get a much better rate relative to its export competitors is now much lower, the bank said. The bank expects the rupee to weaken further if threats of secondary sanctions on imports from Russia play out. Trump last week said India will pay a penalty over the 25% tariff for its procurement of military equipment and energy from Russia.

"Net-net, we see USD/INR potentially rising further perhaps above 88 levels if material threats on Russia secondary sanctions play out but stress this is not our base case," it said. "We do not assume either material Russia secondary sanctions and/or a sharp spike in oil prices, although we build in some gradual removal of the Russia oil discount in India's trade deficit."

The bank sees the rupee at 87.00 a dollar by December-end. So far in 2025, the rupee has depreciated 2.4% against the dollar. Since Trump announced the tariffs on India on Wednesday, the rupee has declined 0.3% against the dollar.

The bank sees India's GDP growth hit by around 30 basis points over time due to the US tariffs, assuming that sectoral tariffs of 25% eventually fall on India's electronics and pharmaceutical sectors. "In our base case, we assume that India strikes a deal with the US and lowers its tariffs to 20% by October 2025, but importantly tariff uncertainty will remain a headwind in the meantime," it said.  End

US$1 = INR 87.63

Reported by Pratiksha

Edited by Ashish Shirke

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