Rupee's likely to slip despite RBI push for stability
The rupee could decline to 96-97 per dollar by the end of FY27 due to several factors. Persistent outflows from Indian financial assets and elevated crude oil prices create additional pressure. Although the Reserve Bank of India argues for potential stabilization, economists remain skeptical of this outlook. Recent foreign exchange actions indicate ongoing depreciation pressures on the currency.
The Indian rupee may weaken to 96-97 dollars by the end of the fiscal year 2027, contrary to the Reserve Bank of India's (RBI) hopes for it to strengthen, according to economists and forex specialists. Persistent outflows from Indian financial assets, high crude oil prices, and rising global yields are all contributing to the pressure on emerging markets, including the rupee.
RBI Deputy Governor Poonam Gupta recently argued for the rupee to stabilize or even appreciate, suggesting that its recent depreciation could be temporary. She noted that the currency might have over-corrected by up to 13% since March 2025.
However, economists interpret the data differently. Gaura Sengupta, chief economist at IDFC First Bank, points out that the depreciation pressures continue despite a substantial current account surplus, as this surplus is mainly due to Foreign Currency Non-Resident (Bank) (FCNR(B)) inflows that the RBI has soaked up. Excluding these inflows, the current account was negative in the first half of fiscal year 2027, showing weakness in other capital flows, including foreign portfolio investment.
The recent currency market movements indicate that the rupee is still facing continued pressure. It hit a record low of 96.96 dollars in late May, prompting the RBI and the government to introduce a series of measures to attract foreign capital. The currency recovered to around 94.50 dollars, but these gains were short-lived, lasting only about a week in mid-June. Since then, depreciation pressures have returned and grown stronger over the past month.
Currently, the rupee trades within a range of 95.65-95.95, with heavy RBI intervention preventing it from weakening past 96 dollars. This intervention has also led to a decrease in foreign exchange reserves, which fell by $14.8 billion to $765.9 billion in the week ending September 18, down from a record $785.7 billion in the week of September 4.
Despite these challenges, there are concerns about the rupee's depreciation, with forecasts suggesting it could fall by 3-4% next year. Even with limited RBI intervention, as the US dollar strengthens globally, the rupee may struggle, potentially exacerbating imported inflation.
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