A man holds an Indian one hundred rupee (below) and a US dollar currency note at a foreign exchange office in Hyderabad on May 16, 2026. (Photo by Noah SEELAM / AFP via Getty Images)
Noah Seelam | Afp | Getty Images
Fund outflows and a rising energy bill are expected to keep putting pressure on India's rupee, even as the central bank works to slow depreciation.
Over the last several days, the currency has recovered from 96.79 rupees per dollar to the 95-level, aided by the Reserve Bank of India's latest measures. But while those will provide short-term relief, the currency is expected to weaken toward the end of the year and mid-2027, and a 100 rupee-per-dollar mark could not be ruled out, strategists said.
The RBI's steps will slow the rupee's depreciation, but they cannot "fully offset the fundamental pressures stemming from elevated oil prices, a wider current account deficit, and a challenging global capital flow environment," Hanna Luchnikava-Schorsch, head of Asia-Pacific economics at S&P Global Market Intelligence, told CNBC.
Her firm sees the Indian currency trading around 97 per US dollar by end-2026 and at 98 rupees by mid-2027. Singapore-based Mizuho Securities also expects the rupee to slide to 98 rupees against the greenback by late 2026 and early next year, Vishnu Varathan, head of macro strategy for APAC at the firm, told CNBC.
"The RBI is determined to do whatever is necessary to ensure orderly movement in the foreign exchange market," Sanjay Malhotra, the governor of the RBI, said in an interview with local Indian media outlet Moneycontrol on Tuesday.
Curbs on FX speculation
On Saturday, the central bank announced measures that will make it expensive to take speculative bets on the rupee and restrict rebooking of cancelled foreign exchange derivative contracts. It also opened a special window to meet the entire daily dollar requirements of three public sector oil marketing companies, ring-fencing this trade from spot markets.
The steps offer "short-term to medium-term stability, not long-term structural support," Devarsh Vakil, head of research at HDFC Securities, told CNBC,
These steps come just months after the central bank in June launched a special scheme, known as the Foreign Currency Non-Resident (Bank) deposits, that offered incentives to non-resident Indians for making foreign currency deposits in Indian banks.
While this boosted the RBI's foreign exchange reserves by $105 billion, global adverse conditions forced the central bank to make "aggressive" intervention in spot markets to counter the pressure on the rupee, global brokerage Nomura said in a report on Saturday.
Since the close of the program on Aug. 30, the rupee has fallen 1.9% against the dollar, and the RBI's interventions to curb the decline "through dollar sales" have resulted in foreign reserves falling by $51 billion as of Oct. 2, Indian brokerage Ambit Capital said in a report on Wednesday.
FCNR-B, along with other currency swap measures announced in June, has led to forward dollar commitments of $200 billion that reduce the RBI's effective reserve cover, "leaving the rupee vulnerable to further depreciation," the report said.
India's import cover stands at around 6.2 months, its lowest since the U.S. taper tantrum in 2013, it added.
2027 Outlook
India, which remains the world's fastest-growing major economy, is among the countries most vulnerable to supply disruptions caused by the Iran war. The South Asian country meets nearly 85% of its fuel needs via imports, with the Strait of Hormuz being a key supply route before the war.
High energy costs, coupled with record exits of foreign investors from its capital markets due to risk aversion and the lack of artificial intelligence play, have kept the rupee under pressure.
Indian Prime Minister Narendra Modi appealed to citizens last month to avoid foreign travel and buying gold, to ease the pressure on the local currency. He had made a similar call in May, amid the growing risks to the economy from the Iran war.
A move towards 100 rupees per US dollar cannot be excluded, Luchnikava-Schorsch said, adding that the scenario could play out "if oil prices rise further, portfolio outflows resume and the current account deficit widens beyond current expectations."
Foreign portfolio investors have sold direct Indian equities worth $32.5 billion this year through Oct. 13, according to the data of Indian depository NSDL.
The rupee is likely to remain under pressure for the financial year ending in March 2027, Harsimran Sahni, associate director and head of treasury at Indian firm Anand Rathi Global Finance, said.
"Businesses should strengthen their hedging strategies and stress-test their foreign currency exposures," Sahni said, adding that RBI interventions can moderate volatility but cannot offset external imbalances "indefinitely."
If sustained capital outflows coincide with elevated crude prices and a widening current account deficit, the rupee could move toward the 100 per dollar mark, he said.