India rupee seen stuck near record lows as capital outflows blunt RBI support
The Indian rupee is expected to languish near record lows over the next three to six months, a Reuters poll of FX strategists showed, as capital outflows keep pressure on the currency despite heavy intervention by the Reserve Bank of India.
A global bond market rout, which has pushed yields in the US and other developed markets to multi-decade highs, has further pressured the rupee. It is down nearly 7% against the dollar so far this year.
Foreign investors have sold nearly $29 billion of Indian equities this year, despite official data saying India is the world's fastest-growing major economy.
The rupee, which fell to a two-month low last week, was expected to trade around 96.10 per dollar in three months, near current levels, and weaken to 96.50 by end-March, according to the median forecast in Reuters poll of 35 currency strategists conducted from September 30-October 5.
"The rupee is definitely going to be weaker for the next couple of months. When US Treasuries, considered the safest asset globally, are giving around 5.25% then there is no way you can expect foreign investors to come to India and invest," said Madhavankutty G, chief economist at Canara Bank.
A year from now, the rupee is forecast to weaken more than 1% from current levels to a record low of 97.50 per dollar. It is one of the few major Asian currencies expected to lose ground against the dollar over the next year.
The rupee, on average, has weakened around 1% a month in 2026. At that pace, it would reach the psychologically significant 100-per-dollar level within six months, a threshold many foreign exchange market participants expect the authorities to try to avoid.
Asked whether the rupee would have breached 100 against the dollar without the RBI's heavy interventions, Anil Bhansali, head of treasury at Finrex Treasury Advisors, said it "should have happened in June".
Still, no strategist polled expected the rupee to pass 100 to the dollar over the next year, with BofA, UOB and Barclays forecasting it at 99 per dollar by end-September 2027.
The RBI has significantly increased its firepower to defend the currency since June, with foreign exchange reserves at nearly $750 billion as of September 25, largely due to a surge in one-off policy-induced dollar inflows.
Its net forward dollar liabilities also ballooned to a record $200 billion in August, highlighting the scale of the central bank's efforts to support the rupee.
"The RBI ... would want to keep the rupee anchored in a particular range for some time so it looks more like an orderly depreciation. But until we see capital inflows, the rupee will remain under pressure," said Anitha Rangan, chief economist at RBL Bank.
She added aggressive rate hikes would probably help the Indian rupee.
A separate Reuters poll showed the RBI would raise its key policy rate by 25 basis points to 5.50% on Wednesday and again in December.
(Other stories from the Reuters October foreign exchange poll)
