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Rupee to Hit 92 vs Dollar by 2026 Despite US-India Trade Deal: UBS

The Indian rupee may see a temporary rally to around 89 against the US dollar following the US-India trade deal, driven by reduced political risk. However, UBS analysts believe the Reserve Bank of India's strategy to build foreign exchange reserves will limit sustained appreciation. They forecast a 2% annual depreciation, targeting a USD/INR rate of 92 by the end of 2026, which is less severe than broader market expectations. This outlook aligns with the RBI Governor's earlier remarks on long-term depreciation trends.

Key Points: Rupee to Depreciate to 92 by 2026, Says UBS Report

  • Short-term rally to 89 possible
  • RBI's FX reserve build-up limits gains
  • Less bearish than market's 93-94 forecast
  • Structural factors drive gradual weakening
2 min read

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

UBS forecasts the Indian rupee will weaken to 92 against the US dollar by end-2026, despite short-term relief from the recent trade deal.

"we expect a 2 per cent p.a. rate of depreciation toward a year-end target of 92 for the USDINR - UBS report"

New Delhi, February 5

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.

- ANI

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Reader Comments

R
Rohit P
As someone who imports raw materials, a weaker rupee directly hits my business costs. This "short-term relief" they talk about needs to actually materialize and last long enough for us to plan. Constant depreciation, even if slow, erodes margins year after year. 😓
D
David E
Interesting analysis. The RBI's focus on reserve accumulation is prudent, especially given global uncertainties. A managed, gradual depreciation is far preferable to a sudden shock. The key will be how effectively the benefits of the trade deal offset these currency pressures.
A
Anjali F
Everyone focuses on the dollar, but what about the rupee against other currencies? If the dollar is weak globally but rupee is falling against it, that's a concern. Makes planning for my daughter's education abroad even more stressful. Need to start saving more in dollars maybe.
K
Karthik V
The report mentions the RBI Governor's remarks about 3-3.5% depreciation being consistent with long-term trends. So 2% is actually an improvement? It's all about perspective. The trade deal seems to have shaved off some of the worst-case forecasts. That's a win in my book. 👍
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Sarah B
While the analysis seems sound, I have a respectful criticism. These reports often underestimate the impact of domestic inflation differentials. If our inflation remains higher than the US's, the real effective exchange rate depreciation could be more painful than the nominal 2% figure suggests.

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

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