India’s macroeconomic backdrop remains resilient, with growth projected at 6.8% and inflation hovering at the lower end of the Reserve Bank of India’s (RBI) 2-6% target range. While trade tensions with the United States have eased and potential tariff reductions are on the horizon, the RBI is expected to maintain its key policy rate at 5.50% in the near term. This stance is supported by stable inflation and the central bank’s policy flexibility.
According to Commerzbank’s FX analysts Charlie Lay and Moses Lim, the Indian rupee has weakened modestly this year but is expected to remain broadly stable. They forecast the USD/INR exchange rate to be around 89 by the end of 2026.
**RBI Likely to Hold Rates After Front-Loaded Cuts**
“The macro environment remains stable despite uncertainties over US tariffs. Growth is expected to be around 6.8% for the current fiscal year, with inflation at the lower end of the RBI’s 2-6% target,” the analysts note. “The RBI has already front-loaded rate cuts to support economic growth. Additionally, the weaker Indian rupee should help absorb some of the tariff shock.”
Trade tensions between India and the US have subsided, with suggestions that US tariffs could be lowered to 15-16% in exchange for increased purchases of US imports and a halt on Russian oil imports.
The introduction of GST 2.0 reforms has provided a positive boost to consumer and investor confidence by simplifying the tax structure and generally lowering prices.
**Stable Rates Amid Benign Inflation Outlook**
“Given the benign inflation backdrop, the RBI is expected to keep rates steady at 5.50% in the near term but retains the flexibility to cut rates if necessary,” the analysts explain.
The Indian rupee has depreciated over 3% against the US dollar year-to-date but is expected to stabilize. Commerzbank projects the USD/INR rate to be around 89 by the end of 2026, reflecting RBI’s preference for currency stability amidst ongoing global uncertainties.
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