The Indian Rupee (INR) is experiencing renewed weakness, with the USD/INR exchange rate moving back toward the 95.00 handle, driven by persistent foreign portfolio outflows and an unfavorable global risk environment [1][2]. According to DBS Group Research’s Radhika Rao, foreign portfolio outflows from the equity market have reached -$5 billion this fiscal year and -$0.7 billion from debt, contributing to the Rupee's depreciation [1]. Michael Wan at MUFG also highlights that the Rupee entered the Iran conflict period already facing strong capital outflows, which has heightened its vulnerability [2].
Both sources note that the Reserve Bank of India (RBI) is reportedly considering measures to attract foreign inflows to support the Rupee. These measures include a possible FCNR swap scheme and the removal of withholding tax on offshore bond investors, as well as a facility to attract non-resident inflows [1][2]. Press reports cited by both DBS and MUFG indicate ongoing discussions within the central bank regarding these potential steps [1][2].
The elevated Brent crude price, which remains above $100, is flagged as a risk factor that could lead to domestic retail fuel price hikes and exacerbate inflation risks, especially with El Nino-related concerns [1]. DBS expects benchmark bond yields to remain elevated as markets price in fiscal and tightening concerns, including higher subsidies [1].
MUFG projects that USD/INR will trade in the 95.00–96.00 range over the next 12 months, implying continued underperformance of the Rupee [2]. Both sources emphasize that the Rupee’s trajectory is closely tied to global developments, including the absence of progress in US-Iran negotiations and delays in reopening the Strait of Hormuz [1][2].
CONCLUSION
The Indian Rupee remains under pressure due to persistent capital outflows and elevated oil prices, with both DBS and MUFG highlighting downside risks and the likelihood of continued underperformance. The RBI is reportedly considering measures to attract foreign inflows, but market sentiment remains negative as the USD/INR is expected to stay elevated in the coming months.