Rupee fall acts as ‘shock absorber’ for high US tariffs: SBI Research

The sharp depreciation in the value of the Indian rupee, which slipped below 91 against a dollar on Tuesday, has acted as a "shock absorber" for the high US tariffs, SBI Research said.

“Recent exports data validate this fact… India’s goods exports witnessed an excellent turnaround recently and in November exports grew by a whopping 19.4%," it said.

The Indian rupee has depreciated by 5.7% against the dollar since US President Donald Trump announced sweeping tariff hikes across economies on April 2. The rupee has been the worst performing currency among major economies so far, this year.

In fact, the other major currencies like the euro, British pound, Chinese yuan, Russian rouble and South African rand have appreciated against the US dollar since April. the rand has appreciated by 11%, while the euro has strengthened by 8.3% against the US currency in the past eight months.

SBI Research noted in its report that the steep “50% tariffs imposed on India is one of the major factors behind the current phase of rupee depreciation”.

The currency depreciation has made India’s exports more competitive. This was reflected in the November trade data. India’s exports jumped 19.38% year-on-year to $38.13 billion in November. Shipments to the US soared by 22.6% to $6.98 billion during the month under review. A sharp jump in exports led to reduction in the trade deficit, which fell to a five-month low of $24.53 billion in November.

However, this trend is unlikely to be sustained. “Although the direction and magnitude of the responses suggest that trade volumes are elastic with respect to the exchange rate, the effects on exports and imports are broadly comparable in size and opposite in sign, resulting in a substantial degree of offsetting,” SBI Research said.

“Despite measurable short-run sensitivity of both exports and imports to rupee depreciation, the dynamic effects largely cancel out, rendering the trade balance relatively insensitive to exchange rate shocks in the current period,” it said.

Referring to trends and historical analysis, SBI Research forecasted that the rupee is likely to appreciate by at least 6.5% from the current level. It is likely to bounce back to 87 on average in 2026. On the flip side, the rupee may depreciate further to 92-92.5 against a dollar in six months.

Snapping its five-day losing streak, the rupee gained 0.7% on Wednesday, the biggest single-day gains in two months. It appreciated to 90.38 per US dollar on Wednesday from its last closing price of 91.02.

The sharp Wednesday’s appreciation in the value of rupee, according to analysts, is because of the Reserve Bank of India’s intervention in the forex markets.

“The rupee rebounded sharply from near 91.00 to around 90.35, likely aided by intervention, snapping a multi-day losing streak. However, the sustainability of this recovery remains uncertain as India–US trade deal clarity is still awaited and FII selling continues. Volatility is expected to persist, with the rupee likely to trade in the 89.80–90.80 range,” said Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities.

India’s forex reserves fell to $687.2 billion for the week ended December 5, from a high of $703 billion recorded in June.