Reserve Bank of India (RBI) Governor Sanjay Malhotra has emphasized that the impact of the recently announced India-US trade deal on the Indian Rupee will largely depend on the specifics outlined in the agreement. Speaking on Friday, February 6, 2026, Malhotra highlighted that while the "mother of all trade deals" with the European Union and the agreement with the United States to reduce tariffs on Indian exports are positive developments, a comprehensive understanding of the deal's details is crucial to accurately assess its influence on the currency market.

The Rupee has shown a positive trend recently, trading near its all-time high, bolstered by dollar sales from foreign banks and a decrease in short bets. This appreciation occurred despite persistent corporate demand for dollars. On Tuesday, February 3, 2026, the Rupee experienced a significant surge of 1.2% to reach 90.40 against the US dollar, marking its largest single-day gain since 2021. This surge followed the announcement of a tariff cut on Indian goods by the U.S. President, reducing them from 25% to 18%.

The India-US trade deal has brought significant economic benefits, including the reduction of tariffs on almost 60% of Indian exports to the US. Goldman Sachs projected an additional GDP growth of 20 basis points if the reduced tariffs are strictly applied, while Barclays estimates the effect at 30 basis points. Markets responded positively, with a sharp rally in equities and a strong appreciation of the rupee right after the announcement. Investor sentiment also improved as uncertainty receded to a large extent.

The RBI's Monetary Policy Committee (MPC), led by Governor Malhotra, has decided to maintain the repo rate unchanged at 5.25%. The MPC retained a neutral policy stance. The central bank has already cut the repo rate by 125 basis points since last February and may maintain a pause, although some believe another rate cut remains possible to further lower borrowing costs.

Malhotra stated that India's forex reserves had come down and therefore "all holdings have came down". "But there is no reduction in our holdings of US treasuries," he added. The central bank reportedly sold dollars from its reserves last year to cushion the rapidly falling rupee amid the US-India trade frictions.

While the impact on India's growth from the trade deal will take some time to materialize, the boost to market sentiment has already led to tangible results. The stock markets closed over 2% higher on Tuesday, reversing the post-Budget losses due to the hike in the Securities Transaction Tax (STT), while the rupee strengthened by more than 1% against the US dollar.

HSBC analysts said that the rupee is now “slightly undervalued” and expect the currency to appreciate further to 88-per-dollar by the end of March.

Malhotra also addressed concerns about the proposed 50% tariff on Indian exports to the U.S. announced by President Trump. Malhotra expressed hope that negotiations will succeed, limiting any negative fallout. He emphasized that even if implemented, the overall impact on India's economy is expected to be minimal.

The Governor emphasised that the risks to these projections are evenly balanced. With the signing of a landmark trade deal with the European Union and the US trade agreement in sight, growth momentum is likely to be sustained for a longer period.