Law described 2025 as a “write-off kind of year” for India after several years of strong macro performance, noting that the rupee has been one of the top depreciators in the emerging market pack. He identified three drivers for the rupee: the interest rate differential with the US, the balance of payments, and any progress on a US–India trade deal.
India’s external position, he said, has weakened. The current account has moved from a small surplus to a deficit, and capital flows have cooled sharply. “Unlike back in 2023, there was a pretty good inflows into India. Last year was pretty much nothing,” Law noted, referring to equity outflows and fading global risk appetite.
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He added that India “doesn’t have a very big connection with AI,” which limits its participation in the AI-driven global investment cycle. While a trade agreement with the US would “definitely help with the sentiment,” Law said a meaningful reversal in the rupee’s depreciation would require significant inflows to return.
On interest rates, Law said a wide rate differential could support the rupee if the Federal Reserve cuts aggressively while the Reserve Bank of India (RBI) maintains its stance. He called expectations of one or two US rate cuts “quite reasonable” given the latest Federal Open Market Committee (FOMC) projections.
A major unknown, however, is the new Fed chair. “If that person is going to be more aggressive pushing for more rate cuts, of course, the scenario will change quite materially,” he said, calling it a major swing factor for global currency markets.
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Law also situated the rupee within a broader regional trend. He said Asian currencies are being “held hostage by the overall general direction of the dollar.” A quicker Fed cutting cycle would weaken the dollar and support Asian foreign exchange, while a slow-moving Fed would keep appreciation pressures limited.
Turning to commodities, Law expects divergence in 2026. He sees reasons for oil prices to remain restrained, but a different outlook for precious metals. “The demand for gold and silver is not just based on industrial demand, but also based on demand for safety,” he said, indicating continued strength in the metals complex.
Providing an out-of-consensus view for 2026, Law said a scenario where the incoming Fed chair struggles to push through aggressive rate cuts could keep the dollar stronger than expected. “As a result, the dollar actually doesn’t go down, if anything, it can go up,” he concluded.
For the full interview, watch the accompanying video
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