Outlook
The INR is likely to stay pressurised to a degree by global USD strength and oil-price moves, but supportive domestic developments—notably export gains from the US-India Comprehensive Trade Partnership—and India's flexible exchange-rate regime help limit outsized moves. In the near term, the currency may remain range-bound with potential for modest upside if export momentum sustains and external conditions remain constructive; downside risk remains if oil shocks or geopolitical tensions intensify.
Key drivers
- US-India Comprehensive Trade Partnership boosts exports, with pharmaceutical shipments up about 14% and technology services to the US up about 9%, supporting INR on improving trade dynamics.
- Geopolitical tensions between India and Pakistan in 2025 caused volatility and some INR depreciation, underscoring sensitivity to regional risk; markets have since priced in improved policy flexibility.
- RBI’s move toward a more flexible exchange-rate regime in 2025 allows the INR to adjust more freely to market conditions, cushioning extreme moves but leaving it responsive to global flows.
- Crude oil price volatility influences India’s trade deficit and demand for USD, shaping INR direction through import bills and external funding needs.
Range
INR/USD at 0.010999, just 0.5% below its 3-month average of 0.011058, having traded in a very stable 3.2% range from 0.010864 to 0.011211.
INR/EUR at 0.009340, just 0.8% below its 3-month average of 0.009416, having traded in a relatively stable 6.4% range from 0.009085 to 0.009669.
INR/GBP at 0.008150, just 0.7% below its 3-month average of 0.008205, having traded in a relatively stable 7.6% range from 0.007872 to 0.008470.
INR/JPY at 1.7150, near 14-day highs and just 0.6% below its 3-month average of 1.7251, having traded in a quite stable 5.8% range from 1.6648 to 1.7620.
What could change it
- A sharp move in crude oil prices, due to global supply shifts or demand surprises, could widen the trade deficit and push INR weaker.
- Additional progress or setbacks in the US-India trade framework could lift or cap INR strength through export dynamics.
- Further RBI policy signals or interventions beyond the current flexible regime could alter risk tolerance and volatility.
- Escalation or easing of India-Pakistan tensions, or broader geopolitical risk shifts, could heighten or dampen volatility in the INR.
- Global risk sentiment and USD yield movements remain a key driver; a stronger USD or higher US rates could weigh on the INR.
