Fed, oil risks to keep rupee under pressure; 93 unlikely: ET Poll

Mumbai: The Indian rupee is expected to recover only marginally in coming months, rising to just above 94 to the dollar by end-September and then weakening to below 95 by the end of December, according to an ET poll of economists.

The muted outlook marks a shift from expectations immediately after the Reserve Bank of India announced measures to attract foreign currency inflows, when economists had projected the rupee could strengthen to 92.50-92.75.

Any move towards 93 is likely to be brief, suggests the poll of nine economists, with persistent dollar demand, external risks and geopolitical tensions likely to cap gains. The rupee ended 95.32 per dollar Friday.

Two developments have altered the outlook for the rupee. Shifts in US economic data have reinforced expectations of Federal Reserve rate hikes this year, supporting the dollar and limiting capital flows into emerging markets such as India. At the same time, a precarious truce between the US and Iran has left oil markets highly sensitive to geopolitical developments, with even minor hostilities pushing up crude prices and adding pressure on the rupee.

“The floor for USD/INR for now is firmly established at 94.00-94.50, especially as the dollar has shown some appreciation bias recently,” said Yes Bank chief economist Indranil Pan. Expectations that the rupee’s upside will be limited comes despite anticipated dollar inflows from FCNR(B) deposits and the scheme for external commercial borrowing.

The central bank, in early June, offered a concessional swap facility for ECBs and FCNR(B)deposits to attract dollar inflows. Economists estimate these measures could attract between $40 billion and $70 billion over the coming months.

“The dollar index and geopolitics affecting crude oil prices are primary factors I will watch out for. But yes, we were initially looking at a possible rupee appreciation towards 93 levels, but those levels look a little remote now unless sustained FPI flows in equity emerge,” said Upasana Bhardwaj, chief economist at Kotak Mahindra Bank.”A sub-94 level cannot be ruled out, but that may be brief, because global risks from geopolitics and Fed rate hike remain and the Reserve Bank of India will likely step in to curb major appreciation in the INR in case of sustained inflows,” Bhardwaj said.

The rupee has depreciated 0.5% so far in fiscal 2027, partially recovering from a record low of 96.96 in late May when it was down 2.2%. In FY26, the local currency had weakened nearly 11%. Canara Bank chief economist Madhavan Kutty G also expects only modest appreciation in the rupee, but attributes it to an additional factor.

He believes the RBI’s FCNR(B) deposit and ECB scheme are unlikely to attract the scale of dollar inflows that some economists anticipate, reducing the ability of the measures to support the currency. He expects inflows of $35 billion from the RBI schemes.

“Even when the cease fire was stable around mid-June, the rupee appreciated to only 94.30 levels. Additionally, I don’t know if dollar inflows would be as high as expected because US yields are now rising,” Kutty said.

The rupee had risen to an eight-week high to close at 94.32 on June 19. “Yes, the balance of payments is expected to be positive in Q2, but this surplus is manufactured and that too at a high cost,” he said, adding: “So, how will the rupee appreciate?” Economists are largely unanimous that while the rupee may not see significant gains, a steep depreciation like that witnessed in April and May is also unlikely. RBI’s measures have effectively put a floor for currency depreciation, by improving the prospects for foreign currency inflows.