The Indian rupee is expected to remain under pressure until India signs a trade with the US, said economists and treasury heads in an FE poll. However, 75% believe that it may not breach 90 against the dollar in the next one month unless the Reserve Bank of India does not support the currency through interventions.
According to V R C Reddy, treasury head, Karur Vysya Bank, the 90 level will be protected for a few more weeks. He expects the positive trade deal outcome by December-end would drive the rupee to 88.20.
“The sharp fall in the rupee was led by speculation on the trade deal. There has been constant depreciation pressure on the rupee due to capital outflows. Moreover, recent widening in the trade deficit due to gold imports has also increased demand for dollars,” said Gaura Sengupta, chief economist, IDFC FIRST Bank.
Most participants are quite optimistic about the trade deal happening soon, which will help the rupee to return to the 88 level.
However, Anitha Rangan, chief economist, RBL Bank was among the few who believes that the rupee will likely breach 90 soon. “In the calendar year, we have seen 4.4% depreciation, higher than historical averages of ~3%. As historical conditions have altered, we could see up to 5% depreciation this year,” she added.
Why the rupee hit a record low of Rs 89.48
On Friday, the domestic currency breached 89 level for the first time, hitting a record low. The domestic currency closed 70 paise lower at 89.41 after hitting a low of 89.48, the biggest single-day fall since May 8. Forex traders attributed the sharp fall to a delay in the trade deal and lack of support from the apex bank.
The year-to-date (YTD) depreciation of the currency is 4.62% now, the highest in three years. In the current month, the rupee fell 64 paise or 0.72%. The rupee continues to be the worst performing currency among its Asian peers in FY26. The currency has been under constant pressure since the beginning of the year due to uncertainties around trade deal, geopolitical tensions and persistent foreign outflows.
Market participants believe that falling RBI reserves will likely limit the intervention further. Its dollar short forward positions also rose $6 billion to $59.4 billion in September, the first increase in seven months.
Speaking at an event in Delhi last week, the RBI Governor Sanjay Malhotra reiterated that they do not target any level for rupee and the recent pressure is due to high demand for dollars. He expressed confidence about a ‘good’ trade deal soon, which could ease pressure on the rupee.
Long-Term Headwinds
Though the rupee may appreciate temporarily following a trade deal, it is expected to gradually depreciate and potentially rise above 90 by late 2026.
The strengthening dollar, with the dollar index recently rising above 100 from 97 in September, will add to the pressure on the rupee going ahead. Additionally, rising Japanese bond yields will further weigh on the currency.
“Rising Japanese bond yields narrow the yield spread with the US and Europe, reducing the USD/JPY carry trade’s appeal and causing Japanese investors to repatriate funds from Indian assets,” said Kunal Sodhani, treasury head, Shinhan Bank. He added that, consequently, a stronger yen or tighter global liquidity could increase pressure on the rupee by lowering inflows into Asian currencies.