Rupee Likely to Stay Weak Against U.S. Dollar Despite RBI Measures Expected to Attract $50 Billion in Inflows

Despite a series of measures announced by the Reserve Bank of India (RBI) to encourage foreign capital inflows, the Indian rupee is expected to remain under pressure against the U.S. dollar over the coming months. According to a Reuters survey of currency strategists, the anticipated inflows are likely to slow the pace of depreciation rather than trigger a meaningful recovery in the domestic currency.

Although easing global crude oil prices and supportive policy measures have improved market sentiment, analysts believe structural challenges—including persistent foreign portfolio outflows and the RBI’s reserve management strategy—will continue to cap gains for the rupee.

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Rupee Expected to Remain Near Current Levels

A Reuters poll conducted between June 26 and July 1 among 44 currency analysts indicates that the rupee is likely to remain broadly stable around its present levels over the next year.

The median forecast projects the rupee at:

₹94.5 per U.S. dollar in three months
₹95 per U.S. dollar by the end of 2026
₹95.9 per U.S. dollar over the next 12 months

While these projections suggest the rupee may avoid a sharp decline, they also indicate only limited scope for appreciation despite recent policy support.

Oil Price Decline Provides Temporary Relief

One factor supporting the rupee has been the sharp correction in international crude oil prices. Prices have retreated to levels seen before geopolitical tensions involving the United States, Israel, and Iran intensified earlier this year.

Since India imports the majority of its crude oil requirements, lower oil prices reduce the country’s import bill, ease pressure on the current account deficit, and generally support the domestic currency.

However, analysts caution that this benefit alone is insufficient to reverse the rupee’s broader weakness.

RBI Measures Expected to Bring Significant Dollar Inflows

The RBI recently introduced several initiatives aimed at increasing foreign currency inflows into India. Market participants estimate these measures could collectively attract approximately $50 billion by the end of the year.

Individual estimates in the Reuters survey varied considerably, ranging from $25 billion to as much as $100 billion, reflecting uncertainty over the pace and extent of investor participation.

The expected inflows include overseas investments, foreign currency non-resident (FCNR) deposits, and other capital account transactions intended to strengthen India’s external position.

Positive Sentiment, But Recovery Expected to Be Limited

According to Sakshi Gupta, Principal Economist at HDFC Bank, the combination of lower oil prices and anticipated foreign currency inflows should improve overall market sentiment and reduce pressure on India’s capital account.

She expects the rupee to trade with relative stability while maintaining only a mild appreciation bias. However, Gupta noted that the currency is unlikely to recover all the losses it has suffered since March, even if the expected inflows materialize.

Foreign Equity Outflows Continue to Weigh on the Currency

The rupee has already depreciated by approximately 5.4% against the U.S. dollar during the year, largely due to sustained foreign investor selling in Indian equity markets.

Foreign portfolio investors have withdrawn more than $29 billion from Indian equities during the same period, creating significant demand for dollars and exerting continued downward pressure on the rupee.

These equity outflows have offset some of the positive impact from improving macroeconomic fundamentals.

Bond Market Sees Strong Foreign Interest

In contrast to equities, India’s government bond market has witnessed strong foreign participation.

Following the government’s decision to abolish taxes on overseas investments in government securities earlier this month, foreign investors significantly increased their bond purchases, resulting in record inflows during June.

This has helped improve overall capital flows into the country, although analysts believe the positive effect on the exchange rate may remain limited.

Majority of Economists Expect Only Slower Depreciation

Among economists surveyed, a slight majority believe the RBI’s initiatives will primarily moderate the rupee’s decline rather than produce a sustained appreciation.

Out of 21 economists responding to a separate question:

12 expect the inflows to merely slow depreciation, while
9 anticipate modest appreciation in the currency.

The overall consensus suggests that although the RBI’s measures will provide support, they are unlikely to fundamentally alter the rupee’s trajectory.

RBI Reserve Management May Restrict Market Impact

Economists also point out that a substantial portion of the anticipated inflows—particularly foreign currency non-resident deposits—may not enter the domestic foreign exchange market directly.

Instead, these funds are expected to be swapped with the RBI, allowing the central bank to strengthen its foreign exchange reserves rather than increasing the supply of dollars in the open market.

According to Anitha Rangan, Chief Economist at RBL Bank, this mechanism is likely to keep the rupee trading within a narrow range, as the additional dollars will largely flow into official reserves instead of influencing market prices.

Large Forward Dollar Commitments Remain a Key Challenge

The RBI also continues to manage substantial forward dollar obligations accumulated through earlier interventions aimed at limiting excessive currency volatility.

As of May, the central bank’s outstanding forward dollar commitments had reached a record $106.7 billion.

Analysts believe the RBI may use any increase in dollar inflows to gradually unwind these commitments while simultaneously rebuilding foreign exchange reserves, reducing the likelihood that the inflows will translate into significant rupee appreciation.

Outlook

The consensus among currency strategists is that the rupee is likely to remain broadly stable but weak against the U.S. dollar over the coming months. While lower oil prices, improving bond inflows, and RBI initiatives are expected to provide meaningful support, continued foreign equity outflows, reserve accumulation, and existing forward dollar commitments are likely to limit any substantial recovery.

As a result, the RBI‘s latest measures are widely viewed as tools to cushion the pace of depreciation rather than reverse the rupee’s longer-term weakening trend.