Indian Rupee Remains Steady Amid US-China Trade Tensions: Potential Gains for India
Mumbai, April 12, 2025 – In the backdrop of escalating economic tensions between the United States and China, the Indian rupee has managed to display remarkable resilience. Experts suggest that India may even benefit amid the ongoing trade war, particularly as New Delhi has been proactive in discussions for a bilateral trade agreement with the United States.
The Currency Crisis Speculation
Recent developments have raised speculation that China might resort to weakening its currency, the yuan, by as much as 30% in a bid to mitigate the effects of mounting US tariffs. This in turn raised concerns regarding the potential spillover effects on the currencies of surrounding Asian nations, including the Indian rupee. Despite this speculation, economists remain cautiously optimistic, believing that China is more likely to utilize other strategies to combat the negative repercussions of US tariff policies.
Earlier this week, the People’s Bank of China set the yuan’s central parity rate at just under RMB 7.2 to the USD — marking the most significant depreciation since September 2023. Nonetheless, financial analysts caution that China’s currency pressures stem from various factors, including a negative balance of payments despite a substantial goods trade surplus.
Expert Insights on Currency Stability
Economists from global brokerage firm Nomura have suggested that it is unlikely for China to openly demonstrate an intent to devalue its currency significantly. Instead, they advocate for the use of alternative economic measures such as monetary and fiscal policies and negotiations with other countries to manage trade challenges. According to a report released on Thursday, the firm posits that China will focus on maintaining financial stability amid a time of domestic challenges such as the crisis in its property market.
Barclays Bank’s Mitul Kotecha, head of foreign exchange and emerging markets macro strategy for Asia, expressed concerns over a potential race to the bottom if more aggressive devaluation measures are employed. Kotecha noted that predictions point toward the yuan reaching 7.5 against the USD, while also forecasting the Indian rupee at approximately 88.2 by year-end.
India’s Position in the Trade War
Contrary to expectations of adverse impacts, India’s relatively lower share of exports to GDP positions it favorably in times of shifted trade dynamics. Analysts argue that while a weaker dollar could support emerging markets, this situation may indeed turn to India’s advantage.
Furthermore, Neelkanth Mishra, chief economist at Axis Bank and a member of the Prime Minister’s Economic Advisory Council, suggests that while some nations may consider currency devaluation to counteract tariffs, India’s proactive measures in its negotiations with the US place it in a promising position. The concept of "tariff arbitrage," which India appears poised to leverage, could lead to economic opportunities, contingent upon the right reforms and policies being enacted.
Economic Growth Forecasts
Despite the overall optimism regarding potential gains for India, Nomura has adjusted its projection for India’s economic growth in 2025-26, lowering it to 5.8% from an earlier estimate of 6.0%. This downtick reflects existing growth challenges, which include sluggish private sector investments and household financial stress. The Reserve Bank of India (RBI) also revised its FY26 growth projections, reducing it from 6.7% to 6.5%.
Central Bank’s Perspective on Currency Stability
Throughout recent trade escalations, the RBI has actively intervened in the currency markets to maintain stability. Following the imposition of tariffs by the US on April 2, the rupee has seen a 4% decline, closing at 86.09 against the dollar by the end of trading on Friday. In response to these developments, RBI Governor Sanjay Malhotra reassured stakeholders of the rupee’s stability, emphasizing that intervention would only be warranted in cases of excessive volatility.
“Our currency is stable, bolstered by sufficient reserves of nearly $700 billion,” Malhotra stated. He noted that the Indian economy’s interconnectedness, particularly regarding trade, is less vulnerable compared to others, and highlighted the depth of India’s markets as an asset in maintaining currency levels.
As the US-China trade dynamics continue to evolve, the implications for the Indian rupee and the nation’s broader economic outlook remain to be seen. Yet, there are signs that India’s strategic position may provide opportunities amid adversity.
Share this article:
