Despite the Indian Central Bank's efforts to slow down the depreciation, capital outflows and rising energy costs are expected to continue to put pressure on the Indian rupee.
In the past few days, with the help of the latest measures taken by the Reserve Bank of India ( RBI ), the rupee has rebounded from 96.79 rupees per US dollar to around 95 rupees. However, strategists say that these measures can only provide short-term relief, and they expect the currency to weaken further by the end of this year and in mid-2027, with there even being a possibility of it falling to 100 rupees per US dollar.
S& P Global Market Intelligence Asia-Pacific Economic Director Hanna Luchnikava - Schorsch told CNBC that the measures taken by RBI will slow down the depreciation of the rupee, but they cannot "completely offset the fundamental pressures stemming from high oil prices, a larger current account deficit, and a challenging global capital flow environment."
Her institution expects that by the end of 2026, the Indian rupee will trade at around 97 rupees per US dollar, and by mid-2027, it will be at 98 rupees per US dollar. Sumitomo Securities ( Mizuho Securities ), headquartered in Singapore, also predicts that the rupee will fall to 98 rupees per US dollar by the end of 2026 and early 2027, Vishnu Varathan , the head of macro strategy at Mizuho APAC , told CNBC .
On Tuesday, President Sanjay Malhotra stated in an interview with Indian local media Moneycontrol that 'the bank is determined to make every necessary effort to ensure the orderly operation of the foreign exchange market.'
Curbing foreign exchange speculation
Last Saturday, the Reserve Bank of India announced a series of measures to increase the cost of speculative trading in the rupee and to restrict the rebooking of cancelled foreign exchange derivatives contracts. The central bank also established a special window to meet the full daily dollar demand of three state-owned petroleum marketing companies, isolating such transactions from the spot market.
HDFC Securities Research Supervisor Devarsh Vakil told CNBC that these measures provide "short-term to medium-term stability, rather than long-term structural support."
A few months before these measures were introduced, the central bank launched a special program in June called Foreign Currency Non - Resident ( Bank ) deposits, which provided incentives for non-resident Indians to deposit foreign currency in Indian banks.
In a report on Saturday, Nomura stated that although this plan increased RBI's foreign exchange reserves by $105 billion, the unfavorable global environment forced the central bank to intervene "aggressively" in the spot market to hedge against the pressure on the rupee.
Indian broker Ambit Capital stated in a report on Wednesday that since the end of the program on August 30, the rupee has fallen by 1.9% against the US dollar; meanwhile, RBI's intervention to curb the decline by 'selling dollars' has led to a reduction of $51 billion in foreign exchange reserves as of October 2.
The report states that FCNR-B and other currency swap measures announced in June have resulted in a commitment of $200 billion in forward US dollars, weakening the effective reserve coverage of RBI and "making it easier for the rupee to depreciate further."
The report also added that India's import coverage period is about 6.2 months, which is the lowest level since 2013 when the US " Taper tantrum ".
Prospects for 2027
India remains one of the fastest-growing major economies in the world, but it is also one of the countries most vulnerable to supply disruptions caused by the war in Iran. Approximately 85% of this South Asian country's fuel demand relies on imports, and before the outbreak of the war, the Strait of Hormuz was a key supply route.
High energy costs, coupled with risk aversion and a lack of investment in artificial intelligence themes, have led to a record withdrawal of foreign investors from India's capital markets, continuously putting pressure on the rupee.
Last month, Indian Prime Minister Narendra Modi called on the public to avoid traveling abroad and buying gold in order to ease the pressure on the domestic currency. In May, as the risks posed by the Iran war to the economy increased, he made a similar appeal as well.
Luchnikava-Schorsch indicates that it is 'not impossible' for the rupee to reach 100 rupees per dollar, and it adds that such a scenario could occur if oil prices continue to rise, capital outflows from portfolios resume, and the current account deficit expands beyond current expectations.
According to data from the Indian custodian institution NSDL, as of October 13, foreign portfolio investors have sold Indian direct stocks worth $32.5 billion this year.
Anand Rathi Global Finance, an assistant director and head of finance at an Indian company, Harsimran Sahni, stated that the rupee may still face pressure throughout the fiscal year ending March 2027.
He said, "Enterprises should strengthen their hedging strategies and conduct stress tests on their foreign currency exposures." He added that interventions by RBI can reduce volatility, but they cannot offset external imbalances "indefinitely."
He stated that if there is a continuous outflow of capital, high crude oil prices, and a growing current account deficit at the same time, the rupee could move to a level of 100 rupees per dollar.
