Why economists expect the rupee to weaken to 96–97 despite RBI efforts

# Snapshot The rupee has come under renewed depreciation pressure even after Reserve Bank of India (RBI) and government steps to attract foreign capital. Economists tell The Economic Times they expect the currency to move toward 96–97 per US dollar by the end of FY27 because underlying drivers of demand for dollars remain strong.

# Why forecasters expect further weakness Several concrete forces are cited in the reporting:

• Elevated crude oil prices. Higher oil imports increase demand for dollars to pay for crude, widening the current account deficit pressure and adding to imported inflation risks.

# What RBI has done and its limits The RBI has intervened in the FX market to prevent large moves. Actions and their effects described in the reporting include:

• Market intervention that kept the rupee largely between 95.65 and 95.95 during a recent month and prevented a sustained break past the 96 mark.
• Large FCNR(B) deposits that led to record forex reserves. Reserves touched a record $785.7 billion in early September before falling to $765.9 billion in mid-September after interventions.

Despite these buffers, economists note the BoP excluding FCNR(B) inflows is negative in H1FY27, which means the apparent surplus is driven by a specific category of inflows the RBI has absorbed rather than broad-based foreign investment.

# Recent price action that matters

• The rupee hit a record low of 96.96 per dollar in late May.
• It recovered to roughly 94.50 after government and RBI measures but the gains lasted only about a week in mid-June.
• Depreciation pressure returned and intensified over the following month, signaling that interventions so far have offered only temporary relief.

# Practical implications

• For exporters: A weaker rupee can improve competitiveness and local currency revenues, but payoffs depend on contract terms and pass-through.
• For fixed-income and equity investors: Continued FPI outflows and higher global yields can increase volatility. Watch flows and yields rather than headline reserve numbers alone.

# Short checklist of indicators to watch

• Weekly foreign exchange reserves movements (size and direction).
• Net portfolio inflows and BoP figures excluding FCNR(B) inflows.
• Crude oil price trajectory and any sudden spikes above current elevated levels.
• Dollar index and US Treasury yields for global rate-driven pressure.

The reporting shows the rupee's near-term path will depend more on external flows, oil prices and global yields than on headline reserve levels. RBI intervention can limit extreme moves, but economists expect gradual depreciation toward the 96–97 range by FY27 unless those external pressures ease.