RBI actions likely to keep the rupee in a narrow trading range over coming months
The Indian rupee will trade in a narrow band against the dollar over the next few months, according to a Reuters poll of FX strategists who also said the Reserve Bank of India is likely to keep up with the same pace of currency interventions in the near term.
While most Asian currencies made strong gains against the dollar in 2025, the rupee fell by the most in three years as foreign investors withdrew around $18 billion from Indian equities.
Washington's punitive 50% tariffs on Indian goods are making some investors hesitate to invest in the world's fastest-growing major economy. The rupee, which hit an all-time low of 91.07 in December, avoided steeper losses due to the RBI's frequent dollar sales in the FX market.
The partially convertible rupee was forecast to rise nearly 0.14% from current levels to 89.75 per dollar by end-March, according to the median view of 41 FX analysts polled between January 5-7. It is forecast to trade marginally weaker at 90.3 by end-June 2026 and then at 90.8 in a year.
Pressure on the rupee remains intense, with the RBI acting as the main stabilising force, although the underlying bias toward further weakness persists, said Anitha Rangan, chief economist at RBL Bank.
"Even if we were to see some (foreign capital) flows coming in prospectively, I would still think that the RBI would use it to actually augment its reserves rather than allow the currency to appreciate," Rangan said. "In an uncertain environment, it's very difficult to see that capital flows will actually resume very easily."
FORWARD COMMITMENTS REDUCE RBI'S FIREPOWER
Despite the RBI's near $700 billion in FX reserves, the central bank's large forward dollar commitments limit the buffer available to absorb future demand for dollar sales, especially if trade-related uncertainties stay for longer.
Still, some economists argue that for an emerging market economy like India, the central bank must make routine interventions in the currency market.
"When speculative interest builds up heavily on one side, it is ideal for the central bank to step in and set out expectations, especially in an event or an environment where fundamental pressures also exist. But it is also akin to buying time, not fixing forever. That seems to be the RBI's strategy for now," said Dhiraj Nim, FX strategist at ANZ.
A majority of economists, 11 of 17, who responded to a separate question said that the RBI's intervention in the FX market over the coming month will stay the same. Four said it will increase and two said it will fall.
The poll forecast the rupee roughly unchanged from current levels by month-end.
Median forecasts from a Reuters poll conducted in December showed the RBI is likely done cutting interest rates, after a cumulative easing of just 125 basis points in 2025, the shortest and shallowest campaigns in over a decade.
(Other stories from the January foreign exchange poll)
