INR: INR Resilient to Tariff Announcement, Trade Talks Potentially Offer Relief

The level of tariff applied to Asia countries from the US administration is generally higher than most had anticipated, with the impact of the reciprocal levies therefore expected to be more significant compared to that on Latam/EMEA EM. For India specifically, the level of reciprocal tariff (26%) is among the highest imposed on any of the US’ major trade partners, though the Indian rupee has shown resilience during Thursday’s session amid a broad-based sell-off in the greenback (USD/INR: -0.08%). Local stocks, meanwhile, have slumped alongside global benchmarks. 

• Officials had already offered several concessions to Trump on his trade and immigration agenda prior to yesterday's announcement, though this did not stop the President from criticising India’s trade policy. “The prime minister just left, and he’s a great friend of mine. But I said, you’re a friend of mine, but you’re not treating us right. They charge us 52%,” he said.
• Engagement between US and India officials over a trade agreement has potentially offered Indian assets some reprieve, with the trade ministry today noting that talks are ongoing to conclude a “mutually beneficial, multi-sectoral” bilateral trade agreement.
• JP Morgan’s base case is for further FX weakness and lower policy rates in Asia, with the speed of the latter likely to come down to how sharp FX pressures are in the near term. They are broadly set up for this with an UW FX allocation in the GBI-EM Model Portfolio (UW CNH & THB) which they lean into further by turning MW INR (from OW), and remain short CNH, THB and SGD in outright trades.
• Morgan Stanley note that the RBI may opt for additional rate cuts after the announcement of tariffs, taking the repurchase rate to as low as 5% if growth takes a hit. The central bank will cut the benchmark rate by 25bps and change its stance to accommodative from neutral in the April 9 meeting, they say.