The Indian rupee rallied to its biggest gain in more than three years and India's chief economic adviser raised the country's growth forecast after US President Donald Trump announced a trade deal that will slash tariffs on Asia's third-biggest economy.
The deal announced by Mr Trump late last night follows India's pledge to halt Russian oil purchases and lower trade barriers on American exports.
The Indian rupee strengthened 1.4 per cent to close at 90.2725 per dollar, posting its biggest rise since December 2018. That offered much-needed relief to the struggling currency – Asia’s worst performer in January – and it outperformed its Asian peers following the announcement.
The currency could move to 87 to 88 per dollar in the coming weeks, Societe Generale analysts said, while HSBC analysts forecast a move to 88 by the end of March. Meanwhile, stocks jumped the most since 2021 on Tuesday.
India's chief economic adviser V Anantha Nageswaran said lower tariffs under the agreement would boost the country's economic growth forecast.
“We are looking at probably something close to this year’s growth estimate of 7.4 per cent,” Mr Nageswaran told Bloomberg. “That could be my first guess but I need to go back to my spreadsheets."
He noted the tariff announcement came late on Monday. He had forecast 6.8 per cent to 7.2 per cent growth in the economic survey released a week earlier.
The trade deal announced on Monday would cut US tariffs on Indian goods to 18 per cent from 50 per cent. The US would also scrap an additional 25 per cent punitive duty tied to purchases of Russian oil. In return India, is to stop buying Russian oil and lower its trade barriers with the US.
Indian Prime Minister Narendra Modi "agreed to stop buying Russian oil, and to buy much more from the United States and, potentially, Venezuela", Mr Trump said in a post on his Truth Social account.
The US leader also said Mr Modi also committed to buy more than $500 billion worth of US energy, technology and coal, as well as agricultural and other products.
Asked whether the deal could lead to higher energy prices if India stopped buying discounted Russian oil, Mr Nageswaran said crude prices of $60 to $70 a barrel are “not something historically problematic for the Indian economy", Bloomberg reported. The move came after India and the EU finalised a landmark trade deal.
