A man holds 100 Indian rupees (bottom) and US dollar bills at a currency exchange office in Hyderabad on May 16, 2026. (Photo by Noah SEELAM/AFP via Getty Images)
Noah Seeram | AFP | Getty Images
Capital outflows and rising energy prices are expected to keep the Indian rupee under pressure, even as the central bank tries to contain currency depreciation.
The currency has rebounded from 96.79 rupees to 95 rupees to the dollar in recent days, buoyed by the Reserve Bank of India’s latest measures. But while these will provide short-term relief, the currency is expected to depreciate from year-end to mid-2027, with the possibility of a 100-rupee drop to the dollar not being ruled out, strategists said.
Hanna Ruchnikava Schorsch, head of Asia-Pacific economics at S&P Global Market Intelligence, told CNBC that while the RBI’s actions will slow the rupee’s weakness, “they will not fully offset the underlying pressures arising from high oil prices, widening current account deficits, and a challenging global capital mobility environment.”
Her company expects the Indian currency to be around 97 rupees to the dollar by the end of 2026 and 98 rupees by mid-2027. Singapore-based Mizuho Securities also expects the rupee to depreciate to 98 rupees against the US dollar by the end of 2026 or early next year, Vishnu Varasan, head of Asia Pacific macro strategy at the firm, told CNBC.
“The central bank is determined to do whatever it takes to ensure orderly movement in the foreign exchange market,” central bank governor Sanjay Malhotra said in an interview with local Indian media outlet Moneycontrol on Tuesday.
Curbing foreign exchange speculation
The central bank on Saturday announced measures to make speculative bets on the rupee more costly and restrict the rebooking of canceled foreign exchange derivatives contracts. It also opened a special window to meet all the daily dollar requirements of three public sector oil marketing companies, locking them out of the spot market.
Devarsh Vakil, head of research at HDFC Securities, told CNBC that the move provides “short-to-medium term stability rather than long-term structural support.”
These steps come just months after the central bank in June launched a special scheme known as ‘Foreign Currency Non-Resident (Bank) Deposits’ that provides incentives for non-resident Indians to make foreign currency deposits with Indian banks.
This increased the central bank’s foreign exchange reserves by $105 billion, but global adversity forced the central bank to intervene “aggressively” in the spot market to counter rupee pressure, global brokerage Nomura said in a report on Saturday.
Since the end of the program on August 30, the rupee has depreciated by 1.9% against the dollar, and the Reserve Bank of India’s intervention to contain the decline “through dollar selling” has reduced foreign exchange reserves by $51 billion as of October 2, Indian brokerage Ambit Capital said in a report on Wednesday.
The report said FCNR-B, along with other currency swap measures announced in June, resulted in $200 billion in dollar forward commitments, reducing the RBI’s effective reserve cover and “making the rupee more exposed to further depreciation.”
India’s import cover is around 6.2 months, the lowest since the US taper tantrum in 2013, it added.
Outlook for 2027
India remains the world’s fastest-growing major economy, but one of the countries most vulnerable to supply disruptions caused by the Iran war. The South Asian country meets almost 85% of its fuel needs through imports, and the Strait of Hormuz was the main supply route before the war.
The rupee remains under pressure due to high energy costs and a record exodus of foreign investors from capital markets due to risk aversion and lack of use of artificial intelligence.
Indian Prime Minister Narendra Modi last month urged people to avoid traveling abroad and buying gold to ease pressure on the country’s currency. He made similar comments in May, amid growing economic risks from a war with Iran.
Ruchinikawa-Shorsch said a move towards 100 rupees to the dollar cannot be ruled out, adding that a scenario could unfold “if oil prices rise further, portfolio outflows resume and the current account deficit widens beyond current expectations.”
Foreign portfolio investors directly sold Indian stocks worth $32.5 billion till October 13 this year, according to data from Indian stock exchange NSDL.
Harsimran Sahni, associate director and head of finance at Indian firm Anand Rati Global Finance, said the rupee is likely to remain under pressure in the financial year ending March 2027.
“Companies should strengthen hedging strategies and stress test their foreign currency exposures,” Sahni said, adding that central bank interventions can ease volatility but cannot offset external imbalances “indefinitely”.
He said if capital outflows continue, combined with rising oil prices and a widening current account deficit, the rupee could appreciate towards 100 rupees to the dollar.
