Union Budget 2026: Union Finance Minister Nirmala Sitharaman is set to present the Union Budget for the 2026-27 fiscal year on Sunday, February 1. The Budget will outline the government’s economic priorities for the coming fiscal year. Beyond expected tax reliefs to the announcement of new welfare schemes, markets are closely watching its potential impact on the Indian rupee.

Just a few days ahead of the Budget, the rupee weakened sharply against the US dollar. On January 16, it dropped by 63 paise to close at Rs 90.86 per dollar, marking the biggest single-day fall in nearly two months. Traders now expect the rupee to slide toward the 91 per dollar, or possibly even breach its all-time low of 91.08.

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How Does The Union Budget Influences Rupee?

According to an NDTV report, the Union Budget can have a significant impact on the Indian rupee, both in the short term and the long run.

- Fiscal Deficit: One of the key numbers to look for in the Union Budget is the fiscal deficit. It shows the gap between what the government earns and what it spends. A smaller-than-expected deficit strengthens the rupee, while a larger-than-expected deficit can trigger market concerns and weaken the currency.

- Tax Changes: Another factor that affects the Indian Rupee is tax changes. Policies that favour investors usually attract foreign capital, supporting the rupee, whereas higher taxes or less investor-friendly measures can trigger outflows and weaken the currency.

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- Expenditure: Currency traders and investors also pay attention to the government’s spending priorities. Investments in infrastructure, manufacturing, exports, and job creation can boost long-term economic growth. However, if spending increases without sufficient revenue to support it, it can put pressure on the rupee.

- Import Duties: Additionally, higher import duties can make imported goods more expensive, leading individuals and businesses to reduce imports. Since imports are paid in US Dollars, lower import demand means less demand for dollars in the markets, which can help stabilise the rupee or prevent it from slipping further, the NDTV report added.