The Indian rupee is likely to give up its recent gains and slip again over the next few months, according to most foreign exchange strategists polled by Reuters, as a volatile external environment and record foreign investor outflows continue to pressure the currency despite a weaker American dollar and heavy intervention by the Reserve Bank of India.
The poll, conducted between November 2 and 4 among 37 strategists, produced a clear median forecast: the rupee, currently trading near 94.70 per dollar, is expected to weaken to 96.00 by the end of January and to 96.33 by the end of April. That forecast suggests the currency's brief recovery this week is unlikely to last.
The rupee, which is down 5 per cent this year, hit a record low of 96.96 in May, and touched a two-week high on Wednesday as Democrats captured majorities in both chambers of the United States Congress. Strategists, however, see that high as a pause rather than a turning point.
The reasons for their caution are familiar, but they have not gone away. Higher oil prices weigh heavily on India, the world's third-largest energy importer, because every rise in crude prices increases the country's import bill and the demand for dollars to pay for it. Record foreign investor outflows add a second source of pressure: when overseas funds sell Indian shares and bonds and take their money home, they sell rupees and buy dollars, pushing the currency down.
Those two forces, the poll suggests, are unlikely to fully subside even though the American dollar has weakened and the Reserve Bank has intervened repeatedly to support the rupee.
Upasana Chachra, chief India economist at Morgan Stanley, captured the consensus view in a comment quoted in the Reuters report. "We don't really see foreign institutional investor equity or the trends in capital flows changing meaningfully in the near term, and that will remain a pressure point for the rupee, and that's why we have this slight depreciation bias," she said.
The word "slight" matters: strategists are not forecasting a collapse, but a steady drift lower, with the rupee losing roughly another one and a half per cent against the dollar by January and a little more by April.
Not all forecasters agree on the pace. Bank of America, the most bearish forecaster in the poll, has maintained its call since at least August for the rupee to weaken to 99 per dollar within 12 months — a level that would represent a significantly deeper fall than the median forecast. That outlier matters because it shows how wide the range of views has become.
Some strategists believe the Reserve Bank's defences will hold the line near current levels; others believe the combination of oil, outflows and global uncertainty will eventually overwhelm them.
The cost of defending the currency is already visible in the Reserve Bank's balance sheet. Foreign exchange reserves have fallen to 719.75 billion dollars, while forward dollar liabilities have climbed to a record 239.2 billion dollars, according to the Reuters report.
Forward liabilities are, in effect, dollars the central bank has promised to deliver in the future through hedging contracts, and a record level suggests the bank has been leaning heavily on the forward market to support the rupee without immediately spending its spot reserves. That strategy can buy time, but it cannot change the underlying flows indefinitely. If outflows continue, the bank will either have to spend more reserves, allow the rupee to fall faster, or both.
There is, however, a counter-story that emerged this week, and it is worth setting against the poll's gloom. Foreign investors bought more than 700 million dollars of Indian shares on Tuesday, taking purchases to about 1.5 billion dollars across three sessions, as Indian equities rose 5 per cent over four sessions and talk of potential capital gains tax relief for foreigners improved sentiment.
The rupee strengthened to its strongest level in nearly two weeks on Wednesday, November 4, touching 94.51 against the dollar before trimming some gains to trade around 94.63. A weaker dollar, softer crude prices and signs of renewed foreign buying all helped. Reuters reported Brent crude at 104.36 dollars a barrel on Wednesday, a level that reflects the ongoing war-related premium in oil markets, but one that had eased from recent highs.
Market data cited by Reuters also indicated that overseas investors had bought roughly 1 billion dollars worth of Indian equities during November so far, following two consecutive months of selling. That return, even if modest, is the first sign in months that the outflow trend might be pausing. The question is whether a few sessions of inflows can become a sustained reversal.
The strategists polled by Reuters are sceptical. A few days of buying, often driven by short-term factors such as American election results or tax speculation, does not by itself change the structural picture of high oil prices, elevated valuations in some sectors, and global investors' preference for artificial intelligence trades elsewhere.
The wider context helps explain that scepticism. India's equity market has been largely flat for more than two years, while wage growth has been weak, and foreign investors have found more attractive opportunities in other markets.
The Reserve Bank has already spent 67 billion dollars over the last eight weeks to keep the rupee afloat, according to a CNBC-TV18 analysis, and if foreign selling continues and the government remains intent on not letting the currency slide to 100 per dollar, the bank will have to spend even more of its reserves.
That creates a difficult trade-off: defending the rupee too aggressively depletes reserves, while letting it fall too fast raises the cost of imports, fuels inflation, and makes dollar-denominated debt more expensive for Indian companies.
For ordinary Indians, the rupee's path matters in concrete ways. A weaker rupee makes imported oil, electronics and other goods more expensive, which can feed into petrol prices, transport costs and the general price level. It also affects students studying abroad, families sending money overseas, and companies that borrow in dollars.
Conversely, a weaker rupee can help exporters, whose goods become cheaper in dollar terms, though that benefit is offset if their own input costs, especially energy, rise at the same time. The Reserve Bank's task is therefore not to fix the rupee at a particular level, but to prevent disorderly, sharp moves that would destabilise prices and expectations.
What should readers watch next? First, the monthly foreign portfolio flow data, which will show whether November's early buying continues or reverses. Second, oil prices, which remain the single largest swing factor for India's import bill.
Third, the Reserve Bank's reserve and forward position data, which reveal how much firepower the bank is using. And fourth, the Union Budget debate on capital gains tax, which could, if it delivers relief for foreign investors, change the flow picture more durably than any single week of trading.
For now, the message from the Reuters poll is measured rather than alarming: a currency that has already fallen 5 per cent this year is expected to fall a little further, to around 96 by January, with the risk skewed towards a deeper slide if oil rises or outflows resume. The rupee's two-week high this week is welcome, but strategists are treating it as a breather in a longer downward drift, not as the end of the pressure.
(Reporting based on Reuters via Business Standard and Gulf Times.)