RBI measures may stabilize rupee but fresh lows likely by FY27

A survey of market participants and economists indicates that while RBI actions have provided temporary support to the rupee, depreciation pressures are likely to persist in the coming months. Respondents largely expect the Indian currency to test new lows against major currencies before the end of fiscal 2026-27, driven by persistent external headwinds and capital flow dynamics.

The poll reflects growing concerns among analysts that conventional RBI measures, including forward guidance and selective interventions in forex markets, may prove insufficient to counter underlying weakness in the rupee. Several respondents suggested that more aggressive interest rate hikes could be required to strengthen the currency by making rupee-denominated assets more attractive to foreign investors.

The rupee has faced sustained selling pressure amid elevated US Treasury yields, strong dollar demand, and outflows from Indian equities and bonds. While the RBI has deployed various tools to manage volatility, including managing oil price impacts and limiting sharp daily movements, the underlying trend remains challenging for policymakers seeking to balance currency stability with growth considerations.

The outlook suggests policymakers face a delicate balancing act in the months ahead. Rate hikes intended to support the rupee could dampen domestic growth momentum, while accommodative monetary policy would likely allow further currency depreciation. Market participants will be closely monitoring RBI communications and actions for signals on the central bank's policy priorities.