The rupee continues to slip further to a record lows below 90/$. Elara Capital highlighted that this is more of short-term pain and expect a strong comeback next year. According to them, the weakness is driven by temporary factors and forecasts the rupee to rise to 88–88.50/$ levels by the end of 2026.
RBI likely to step in more actively: Ealara Capital
One of the reasons why the rupee’s fall continues is because of limited intervention by Reserve Bank of India (RBI) to stem the fall. Analyst expects the Reserve Bank of India to turn more active in the forex market as liquidity conditions ease. The central bank has injected about Rs 2 trillion through open market operations (OMOs), creating room for more intervention to stabilise the rupee if needed.
Weakness driven by temporary factors: Elara Capital
Elara Capital noted that, “The USDINR breached a record low of 90+ as many short-term headwinds emerged simultaneously.” Delays in the US–India trade deal, continued FPI selling, and nervousness around global events have all added pressure. India’s current account deficit rose to 1.3% of GDP in Q3CY25, the highest level this year.
On the global front, rising Japanese government bond (JGB) yields have added pressure on Asian currencies (Rupee has a 60% correlation with short-term JGB yields).
Strong reserves and surplus cushion the currency
Elara emphasised that India’s external position remains strong despite the near-term volatility. Excluding gold imports, India’s current account posted a $7.8 billion surplus in Q2FY26. The country’s foreign exchange reserves stand at $688.1 billion, providing nearly 10 times import cover and five times short-term external debt cover.
Equity flows likely to return: Elara Capital
The report highlighted a historical pattern in which equity flows tend to return one to two quarters after the REER bottoms out. The rupee is now the most undervalued it has been since October 2018, based on a 40-country REER index. Elara expects this pattern to repeat as domestic growth picks up through mid-2026 and foreign investors turn positive again.
Dovish Fed outlook may help: Elara Capital
The rupee’s fall is coming despite a weakening US dollar. Elara, however, highlighted that the potential selection of Kevin Hassett as the next US Federal Reserve Chair is expected to bring a more dovish tilt to policy, which could limit the dollar’s strength in the coming years and, in turn, support the Indian currency.
