Asia’s worst-performing currency faces rocky start to 2026

The lack of progress in the US-India trade deal, compounded by persistent outflows of foreign funds, has weighed on the situation. rupee this year, making it the worst performing currency in Asia.

The world’s fifth-largest economy could see its currency fall to 92 against the dollar by the end of March, Nomura and S&P Global Market Intelligence forecast, with any strengthening largely dependent on a trade deal with the United States. The rupee was last trading at 89.6 against the dollar.

“We believe the rupee is currently undervalued, with a correction expected once the US-India trade deal becomes clearer,” said Hanna Luchnikava-Schorsch, head of Asia-Pacific economics at S&P Global Market Intelligence.

The S&P Global unit expects a trade deal within the next six months.

India is one of the the highest Countries around the world have imposed tariffs of 50% – levies that dwarf even those imposed on China – as trade negotiations between New Delhi and Washington continue to drag on.

After high tariffs took effect in August, Indian exports to the United States fell by almost 12% in September and 8.5% in October, before rebounding sharply in November, up 22.6%.

The main economic risk is that India loses momentum in the supply chain transition from companies that primarily supply the U.S. market, due to persistently high tariffs, said Sonal Varma, Nomura’s chief economist for India and Asia ex-Japan.

“Prolonged uncertainty has led to outflows from foreign portfolios, and a weaker rupee may affect import costs and inflation,” she added.

A weak rupee could, however, make exports more competitive, with weak price growth in the country also allowing it to absorb the impact of imported inflation due to currency depreciation.

Earlier this month, the Indian currency crossed the 90 mark against the greenback, an important psychological trigger, after starting the year at 85.64 per dollar. It took less than 15 trading sessions for the currency to cross the 91 rupees mark to reach the dollar.

Global investors have been bearish on India for most of this year, with net outflows of more than $10 billion across all investment categories so far this year, according to data from securities depository NSDL.

The main reason for the rupee’s decline is not India’s current account deficit, as it is expected to be at a manageable level of 1% to 1.5%, Somnath Mukherjee, CIO and senior managing partner at ASK Private Wealth, told CNBC’s “Inside India.”

He added that the rupee would remain under pressure until outflows by foreign portfolio investors reverse.

Capital outflows have been particularly strong in Indian stocks, with foreign portfolio investors net sellers since the start of the year, withdrawing almost $18 billion as of December 19.

“Rupee depreciation is a double-edged sword for FIIs,” Luchnikava-Schorsch said.

While this may be “a good entry point for Indian stocks”, investors will assess the negative impact of “prolonged rupee weakness and trade policy uncertainty”, on public finances and overall growth prospects, it said.

The Indian central bank, which at its monetary policy meeting earlier this month had reaffirmed its policy of letting market forces determine the exchange rate, would have intervened “aggressively” on Wednesday to slow the fall of the currency.