The Indian rupee traded in a narrow range on Thursday, with market participants attributing the moves to quarter-end flows from importers and exporters. Dollar-rupee forward premiums remained firm, staying close to multi-month highs.

At 10:30 a.m. IST, the rupee was at 88.6250 against the US dollar, slightly stronger than Wednesday’s close of 88.69. Earlier this week, the currency touched a record low of 88.7975. The rupee has already fallen over 3% this quarter, marking its steepest slide since the April–June 2022 period.

Long-term decline since 2014

Data shows that the rupee has weakened nearly 30.6% against the US dollar since 2014, underscoring the pressure on the currency from global as well as domestic factors.

Brokerage firm Care Edge noted that the rupee’s weakness this year contrasts with most global currencies that have appreciated against the dollar. The pressure has been linked to the implementation of US secondary tariffs, the hike in H-1B visa fees, and continued foreign portfolio investor (FPI) outflows.

RBI’s role and forecasts

Care Edge expects the Reserve Bank of India (RBI) to intervene to curb excessive volatility in the currency. Despite short-term headwinds, the brokerage maintained its FY26-end forecast of 85–87 for USD/INR, citing supportive macroeconomic factors including:

  • A weaker US dollar outlook
  • A firm yuan
  • India’s manageable current account deficit
  • Potential progress in a US–India trade deal

Supportive factors for the rupee

According to Care Edge, several factors continue to provide a cushion for the Indian currency:

  • Weak US dollar: The dollar index has declined about 10% so far this year, pressured by rate cuts from the US Federal Reserve and concerns over US trade and fiscal policy.
  • Firm yuan: The Chinese yuan has gained 2.5% year-to-date, supported by softer tariffs and stronger equity markets, indirectly aiding the rupee.
  • Manageable current account deficit: India’s CAD is projected at 0.9% of GDP in FY26, with resilient services exports and stable crude oil prices. Even under higher tariff scenarios, the CAD is expected to remain below 1.3%.
  • Domestic resilience: Low inflation, RBI’s recent rate cuts, tax reforms including a simplified two-tier GST structure, and robust growth prospects keep India positioned as the fastest-growing major economy.

Outlook: near-term pressure, medium-term stability

In the near term, analysts expect the rupee to remain under pressure in the 88–89 range, driven by trade uncertainty and the recent US visa fee hike.

However, Care Edge emphasised that the rupee is currently undervalued on a real effective exchange rate (REER) basis, below its five-year average. This provides some scope for appreciation over the medium term, provided global conditions stabilise and trade negotiations between the US and India move forward positively.