Pressure on rupee may continue after temporary gains on RBI actions, say economists

Kolkata: A raft of emergency weekend measures to bolster the rupee, which is tantalizingly close to historic lows, might provide temporary relief to the currency whose defence exhausted a majority of the nearly $52 billion sucked out from India’s forex stockpile in a month, analysts said.

“There can be a natural tendency for the rupee to decline by 3-4% in the long term,” Bank of Baroda chief economist Madan Sabnavis said, underscoring the ‘global’ influence in the currency’s rout, although emergency measures announced Saturday could lift the rupee temporarily from 96.73 a dollar.

The offshore rupee was seen stronger in the forwards market at 96.53/54 on news of the US signing a deal with Russia.


Also Read | RBI's rupee defence may drain banking liquidity, ease currency pressure

In what some analysts described as a throwback to the ‘taper tantrum’ response of 2013, the Reserve Bank of India (RBI) Saturday lowered transaction limits on derivative deals, restricted the rebooking of cancelled contracts, and imposed a 20% cash reserve requirement on forex derivative contracts above $2 million. It also announced a special window to meet the daily dollar requirements of three public sector oil retailers.

The currency lost nearly 10% in FY26 and is on course for another poor showing in FY27, as overseas funds have already pulled out a record $32.4 billion from Indian equities so far this calendar year.

“The recent measures by the RBI will discourage speculation and provide some respite to rupee. However, it won’t change the global backdrop,” said Vivek Kumar, economist with QuantEco Research.

Analysts believe the pressure on the rupee – and emerging market assets in general – is a fallout of global bond yields and a resultant strong dollar, dimming the allure of instruments priced in other currencies.

Also Read | India’s rupee defence raises question of how far RBI will go

US 10-year yields, used as the reference frame to price assets globally, has spiked to 5.3% - the highest in a quarter century. The rupee’s fall has coincided with the surge in US yields, which began hardening past 4.7% since July and has climbed nearly 15% in the last quarter that accounted for nearly half the surge over the past year.

Global Mess

“The current pressure on rupee is predominantly global in nature. Elevated commodity prices tend to widen the current account deficit while high global rates and geoeconomic and geopolitical uncertainties make global capital flows unpredictable and volatile,” Kumar said.

Forex market consultant KN Dey voiced similar concerns.

“We have seen such drastic measures by the RBI in the past. However, the worst seems not over yet. Donald Trump’s action on Iran is still awaited,” Dey said.

The use of the 20% cash reserve requirement on forex derivative contracts above $2 million is a new tool, senior economists said, referring to the 2013 toolkit.

“The reserves accumulated through foreign currency non resident-bank (FCNR-B) accounts are being used to quell abnormal volatility. As the pressure mounts on the rupee due to foreign portfolio investment outflows, crude bills and a stronger dollar, the RBI must be evaluating how the rupee is faring relative to other currencies and accordingly taking action,” Sabnavis said.

The rupee has remained near the bottom of the pile against competing currencies in the continent through 2026.