Rupee Seen Weakening Long-Term Despite Tariff Relief- India’s currency may have found temporary support from easing trade tensions, but economists believe the rupee faces gradual depreciation pressures over the longer term.
The Indian rupee has stabilised in recent weeks after signs of tariff relief helped calm global markets and improve risk sentiment toward emerging economies. However, analysts say the underlying forces shaping India’s external position, capital flows and relative growth dynamics point to a softer currency over time.
Much of the recent optimism has stemmed from reduced trade friction between major economies, which has buoyed export-driven markets and strengthened investor appetite for riskier assets. For India, a less hostile global trade environment supports sectors such as information technology services, pharmaceuticals and manufacturing, all of which benefit from stronger global demand.
Yet currency strategists caution that short-term sentiment shifts do not necessarily alter structural trends.
India continues to run a current account deficit, meaning it imports more goods, services and capital than it exports. A large portion of that gap is driven by energy imports, as the country relies heavily on foreign crude oil to meet domestic demand. When oil prices rise or remain elevated, pressure on the trade balance increases, typically weighing on the rupee.
In addition, portfolio flows into emerging markets can be volatile. Foreign investors often move funds in response to changes in global interest rates, geopolitical risks and relative returns. If US yields remain attractive or risk appetite deteriorates, capital could shift away from emerging markets like India, adding depreciation pressure.
The policy stance of the Reserve Bank of India (RBI) will also play a crucial role. The central bank has historically intervened in currency markets to smooth excessive volatility, using its foreign exchange reserves to prevent disorderly moves. However, it typically avoids targeting a fixed exchange rate, allowing the rupee to adjust gradually in line with economic fundamentals.
Inflation dynamics may further complicate the outlook. If domestic inflation remains above that of major trading partners, the real effective exchange rate could appreciate, reducing export competitiveness unless offset by nominal depreciation. Economists note that over long periods, currencies often weaken in line with inflation differentials.
At the same time, India’s economic growth remains comparatively robust. The country is projected to be among the fastest-growing major economies, supported by infrastructure investment, digitalisation and domestic consumption. Strong growth can attract foreign direct investment and provide some currency support, particularly if reforms continue to improve the business environment.
However, growth alone may not be enough to prevent gradual depreciation. Many emerging market currencies tend to weaken steadily over time due to structural inflation gaps and higher import intensity. Analysts argue that a moderate decline in the rupee could even be beneficial, helping maintain export competitiveness and absorb external shocks.
Global monetary policy will be another decisive factor. If the Federal Reserve keeps interest rates elevated for longer than expected, the US dollar could remain strong. A firm dollar typically pressures emerging market currencies, especially those with current account deficits.
Economists stress that “weakening” does not imply sharp or disorderly falls. Instead, most forecasts point to a controlled, incremental depreciation over the coming years, punctuated by periods of stability or temporary strength when capital inflows are strong.
For businesses and investors, the key issue is predictability. A stable but gently depreciating rupee allows exporters to plan and protects against sudden shocks, while importers can hedge currency risk more effectively. Abrupt swings, by contrast, tend to unsettle financial markets and complicate policymaking.
In the near term, improved trade conditions and resilient domestic growth may limit downside risks. But over the longer horizon, structural trade deficits, inflation differentials and shifting global capital flows are expected to keep the rupee on a weakening path.
As a result, while tariff relief offers breathing space, economists broadly agree it is unlikely to alter the currency’s long-run trajectory.
