By Pratigya Vajpayee
The rupee’s recent rebound from a record low may be fleeting, with analysts predicting renewed weakness in the months ahead on inadequate foreign inflows.
Standard Chartered Plc, Australia & New Zealand Banking Group Ltd., and MUFG Bank Ltd. expect the rupee to decline to 93 per dollar by the year-end, more than 2 per cent weaker from its current level. The currency has trailed Asian peers in the past two weeks, erasing part of its gains after the US cut tariffs on India earlier this month.
The bearish outlook is notable because the US trade pact was expected to lure global funds after the currency hit successive lows, making it most undervalued in nearly 12 years. Stretched equity valuations, limited presence of pure-play artificial intelligence names, and a rising interest-rate gap with global markets may continue to weigh on inflows and the rupee, according to analysts.
The outlook for the rupee may also be clouded by renewed uncertainty after the US Supreme Court on Friday struck down several of President Donald Trump’s tariffs, even as he moved to impose a new global levy.
Overseas investors have resumed buying Indian equities, with net purchases of $1.7 billion so far this month compared with an outflow of $3.3 billion in January. The inflows pale in comparison to China, Japan and Taiwan, and may barely cover the gap between India’s imports and exports.
Meanwhile, high gold prices are expected to push India’s current account deficit to 1.5 per cent of the gross domestic product in the fiscal year starting April 1, from around 1 per cent this year, according to IDFC First Bank Ltd. Foreign direct investment, which has traditionally been a stable source of overseas capital buoying the rupee, is also dwindling.
“The fundamentals of rising gross FDI repatriation for 2026 have not changed, and foreigners are likely to continue taking profits on their investments in India, which will put pressure on the rupee to weaken,” MUFG Bank’s senior currency analyst Michael Wan wrote in a note.
A renewed slide in the rupee could stoke imported inflation, complicate the Reserve Bank of India’s rate path just when it’s near the end of its easing cycle, and erode returns on local bonds and equities for overseas funds.
Some analysts, such as those at Societe Generale, who saw the rupee strengthening to 87-88 after the trade deal, have faced skepticism around their bullish call. In SocGen’s recent meetings in Singapore, corporates, banks and asset management clients said foreign equity inflows are not yet likely to return to India in size given “still-high valuations and unfavorable tax treatments.”
“The high global rates and AI themes are far more attractive rather than putting money in Indian equity markets,” said Anubhuti Sahay, head of India economic research at Standard Chartered. “Unless the capital flows story turns around, we expect the rupee to remain under depreciation pressure.”
This week’s main economic events:
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Monday, Feb. 23: New Zealand retail sales; Singapore CPI -
Tuesday, Feb. 24: RBA’s Plumb speaks; South Korea PPI and consumer confidence; China 1- and 5-year loan prime rate; Malaysia foreign reserves -
Wednesday, Feb. 25: Japan services PPI; Australia CPI and construction work done; Hong Kong GDP; Tokyo department store sales; Bank of Thailand rates decision; Taiwan jobless rate; Hong Kong CPI; RBA’s Bullock fireside chat -
Thursday, Feb. 26: ANZ New Zealand business confidence; BOK base rate; BOJ’s Takata speaks; Australia private capital expenditure; Singapore industrial production and Taiwan BoP current account balance -
Friday, Feb. 27: ANZ New Zealand consumer confidence; Tokyo CPI, retail sales and industrial production; Australia private sector credit; Philippines trade balance; Sri Lanka trade balance; Thailand trade balance; Hong Kong trade balance and India GDP
