The Indian rupee continues to linger in the 95 per dollar range as high dollar demand and sustained FPI outflows limit the scope of upside for the local currency, despite RBI’s recent measures to facilitate concessional forex swaps for overseas borrowing and boost dollar inflows. .
Market participants remain divided on the currency’s trajectory, suggesting that it may remain range-bound in the near term, and it is highly unlikely to strengthen beyond the 93 per dollar mark.
Anindya Banerjee,Head of Commodity and Currency Research at Kotak Securities pointed out that more than just oil prices, RBI’s inflow package and how quickly the dollars arrive in the country are matters of concern for the local currency.
“Hormuz and oil are the overriding wildcard sitting on top of that. So the rupee is really caught in a tug-of-war — RBI-engineered inflows pulling it one way, the oil shock pulling it the other.”
So far this year, the Indian rupee has depreciated 5.9% against the US Dollar.
So what is the base case outlook?
The immediate impact of the central bank’s swap measures is likely to be limited as currency experts note that foreign capital is mostly moving out of the country over increased dollar demand and surging oil prices.
“The swap facility should bring about $30-50 billion of inflows into the country. However, money was mostly going out of the market as the industry is gearing up for the SpaceX IPO,” said Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors LLP.
According to Banerjee, the local currency may recover if tension in the Middle East de-escalate over the next three months.
However, the analyst noted a reversal of the same coupled with crude below $100 could set the three-month range within the 93-98 per dollar band. “In truth, the base case for the rupee is really a base case on the conflict itself — and that is something none of us can call with confidence right now,” he added.
Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Investments noted that for the Indian rupee to appreciate towards the 93 per dollar mark crude would have to fall below the $85 a barrel level. Currently, Brent Crude futures are trading near the $91 level.
He believes that if “crude remains at around $95, rupee is likely to move in the range of 95 – 97 to the dollar.”
Is the risk of 100 per dollar over?
Currency experts note that RBI’s recent suite of initiatives help ensure that Indian rupee does not breach the psychologically important 100 mark in the near term. “The Foreign currency Non-Resident (Bank) and External Commercial Borrowing (ECB) swap measures, along with the rest of the inflow package, are meaningful — on an optimistic read they can pull in $30–40 billion, and that is enough to counter the FII outflows and the speculative positioning that has been weighing on the rupee,” Banerjee said.
Banerjee noted RBI’s reserves currently are positioned well to prevent the currency from chartering into the three digit category against the greenback. “ A breach of 100 would need a sharp escalation in Hormuz with oil running well above $120,” he said.
Echoing a similar view, DR Vijayakumar said, “The recent Government and RBI initiatives to facilitate foreign capital flows have boosted confidence and, therefore, there is no longer any panic in the forex market. As of now, there is no likelihood of the rupee breaching the 100 level.”
However, Bhansali noted that the possibility of currency breaching the 100 mark altogether cannot be ruled out and may arrive as soon as next year, weighed by factors like oil prices and the intensity of foreign capital inflows.
“It’s just a number to me, but it will come,” Bhansali said.
More than just oil – FPI outflow a matter of concern
The currency market sentiment still has a cautious bias as foreign investors remain net sellers of domestic equities, having pulled out Rs 2.6 lakh crore from the Indian markets.
Bhansali noted that in terms of FPI inflows not much is expected as foreign investors continue to divert capital towards markets riding the AI boom. He emphasised that until the country’s current account deficit and FPI deficit are balanced, it remains susceptible to a fall.
Conclusion
Most experts believe that while the recent Government and RBI initiatives to facilitate foreign capital flows have boosted confidence, the rupee is unlikely to strengthen beyond the 93 per dollar mark. On the other hand, they do not rule out the risk of the rupee slipping to 100 per dollar level completely. However, most see it as a concern for next year.
Disclaimer: The views and opinions expressed by analysts and experts quoted in this article are their own and do not represent the views of the publication. Currency market movements are subject to various global and domestic factors, including crude oil prices, geopolitical developments, capital flows, and central bank actions. The information provided is for informational purposes only and should not be construed as investment, trading, or financial advice. Readers are advised to consult qualified financial professionals before making any investment or forex-related decisions.
