Despite short-term relief after US-India trade deal, rupee to depreciate to 92 level by end-2026: UBS report

New Delhi: Indian rupee is expected to depreciate by around 2 per cent to the 92 level against the US dollar by the end of 2026, despite the short -term relief rally following the announcement of the US-India trade deal on January 3, according to a report by UBS.

The report stated that after the trade deal announcement, the rupee could temporarily strengthen to around 89 against the US dollar, largely due to a repricing of the political risk premium. This could also lead to tactical short-covering of bearish rupee positions in the near term.

However, UBS believes that the scope for a sustained rebound in the Indian currency remains limited. One of the key reasons cited is the Reserve Bank of India's preference to continue building foreign exchange reserves.

The central bank is expected to use any near-term strength in the rupee to accumulate reserves, which would also help reduce pressure from its foreign exchange forward book. As of end-November 2025, the RBI's FX forward book stood at about USD 66 billion.

Taking these factors into account, the report said, "we expect a 2 per cent p.a. rate of depreciation toward a year-end target of 92 for the USDINR, in contrast to the markets' more bearish estimates of 3-4 per cent p.a. rate of depreciation toward 93-94."

This outlook is relatively less bearish compared to broader market expectations, which are currently pointing to a steeper depreciation of 3-4 per cent per annum, taking the USD-INR level to around 93-94 by the end of the year.

While there is a difference in the pace of depreciation, both market participants and analysts broadly agree on the direction of movement. The rupee is expected to gradually weaken over time rather than strengthen in a meaningful manner.

The report added that this view is in line with earlier remarks made by RBI Governor Sanjay Malhotra, who had stated in November 2025 that an annual depreciation of around 3-3.5 per cent is broadly consistent with long-term trends.

In 2025, the rupee fell by 4.8 per cent against the US dollar, even as the dollar weakened broadly against other global currencies.

In summary, while the rupee may see some short-term support following the US-India trade deal, structural factors such as the RBI's reserve accumulation strategy and prevailing market expectations suggest that the currency is likely to depreciate by around 2 per cent by the end of 2026, moving towards the 92 level against the dollar.