Up, Up & Up

 Exchange rate of INR is depreciating consistently against USD & Euro

                                      

Why is this happening? 

• Deliberate strategy to insulate exporters on high US tariffs
• Deliberate strategy to insulate exporters on high price increases due to Iran war
• Deliberate strategy to support local manufacturing by making imports expensive
• Oil prices refusing to ease out which means more forex required to buy oil
• Foreign investors have withdrawn more than USD 20 billion from Indian equities in the first four months of 2026, surpassing the record annual outflow seen in the whole of last year, due to uncertainties in growth & global policy changes especially of US
• Interest rates are dropping for the past one year despite price increases (see below chart), expectations of interest rate increases are high, meaning higher inflation

Outlook looks quite challenging with inflation looking imminent to go up, interest rates will go up which means there will be further depreciation of rupee.  100 to USD?

Dollar Appreciating!

USD appreciated sharply against Euro by 1% in 2 days (its best in last seven months) signaling strengthening of USD in context of the recent geo-political situation   

Many things favoured this appreciation of USD of which three are more pertinent - 

• one reversal of penal tariffs by Supreme Courts of US which lead to some stability in trade
• second return of safe haven status to USD aftermath of recent geo-political stress especially conflict in Iran and 
• third with oil prices shooting up due to conflict, US will be mainly insulated as they have local supplies of oil but Euro zone will have to bear the brunt of price increases which means inflation and depreciation of their currency leading to strengthening of USD.

Question : Is this appreciation of USD sustainable, to me it seems to be yes considering the tensions and oil price jumps anticipated.  But let us keep our fingers crossed and wait

  

No Tariff Advantage - India exports to US

Penalty Tariff Goes

With the US Supreme court overturning tariffs imposed using authority under International Emergency Economic Powers Act (IEEPA) of 1977 the penalty tariffs imposed on all countries using IEEPA stand cancelled immediately.   Which means the 18% reduced penalty tariff for India also stands cancelled.  

New Temporary Tariff comes  

Immediately after the Supreme court order Trump introduced a 10% tariff on all countries under Section 122 of the Trade Act 1974, which lets the president levy temporary import surcharges (max for 150 days), which means this additional 10% tariff has a short shelf life of maximum 5 months, by which time Trump has to decide on how they will charge additional tariffs to some countries

What it means for India

With immediate effect India's product will have 10% tariff, will it be an advantage to India - Answer is NO.  All countries across the world will have additional 10% tariff meaning there is no advantage for India at this moment.  So why US India trade agreement?  The US India trade agreement will help India to limit additional tariffs to maximum 18% when Trump administration moves with new laws to increase tariffs for all countries.  For example some countries will have 25% tariff whereas India will be restricted to 18% or lower.  

In short advantage of tariff is removed at this moment for India, may come back later depending on what tariffs are imposed on other countries