Rupee may decline to 96.00 against the dollar by the end of January

According to a Business Standard report, a poll conducted by Reuters shows that most forex strategists believe the Indian rupee could surrender its recent gains and slide back in the coming months. A median of 37 strategists estimated that the rupee, currently trading around 94.70 against the dollar, will fall to 96.00 by the end of January and 96.33 by the end of April. This survey was conducted between November 2 and November 4.

The report indicates that the pressure of high oil prices for India, the world's third-largest energy importer, and the pressure of record foreign investor outflows are unlikely to be completely offset despite a weak US dollar, Reserve Bank of India (RBI) intervention, and policy measures. The domestic currency rupee, which has fallen 5 percent this year, had hit a record low of 96.96 in May. However, it touched a two-week high on Wednesday after US Democrats secured majorities in both the Senate and the House.

Upasna Chachra, Chief India Economist at Morgan Stanley, stated that in the near term, we do not see any meaningful change in FII (Foreign Institutional Investor) equity or capital flow trends, and that will remain a point of pressure for the rupee, which is why our bias is slightly depreciating. In the global Reuters FX poll, strategists widely expect the US dollar to weaken in the coming months, but said it would prove more resilient than anticipated.

Upasna Chachra added that when global financial conditions are tight, it will be more difficult for India and potentially other emerging markets to attract capital. BofA, the most bearish forecaster in the poll, has maintained its call since at least August that the rupee will weaken to 99 per dollar in 12 months. Morgan Stanley has estimated that the rupee will hit a record low in early 2027.

Still, none of the respondents expect the psychologically important 100-per-dollar mark to be breached. The RBI's intervention strategy has depleted some of its important buffers. Foreign exchange reserves have declined to $719.75 billion, while forward dollar liabilities have risen to a record $239.2 billion.

Anita Rangan, Chief Economist at RBL Bank, stated that these USD/INR levels are being artificially held up, this is not a normal market where we are seeing a strongly appreciating rupee, it is just a temporary phenomenon. The central bank does not target any specific USD/INR level and says it intervenes only to curb excessive volatility. However, due to regular RBI intervention, the rupee has closed around 95 per dollar in most months this year.

Anil Bhansali, Treasury Head at Finrex Treasury Advisors, stated that it is very clear that the (RBI) wants the rupee to hover around the 95 level. The RBI's recent moves have also increased the cost of hedging against future currency losses, which could potentially make foreign investors more cautious about committing capital to India.

Apurva Javadekar, Chief Economist at Shraddha Group, stated that the re-entry of FIIs has become very difficult. So, to some extent, the RBI's policy has stabilized the rupee at the expense of both FII flows and forward prices.