MUMBAI: India’s efforts to steady the beleaguered rupee are likely to get harder in the coming months, as insufficient capital inflows replace speculative bets as the main pressure point.
The Reserve Bank of India (RBI) took aggressive steps recently to curb speculation, yet the currency fell to a record closing low on Wednesday. With the US-Iran war – now entering a third month – keeping oil prices elevated, and capital inflows muted, economists are widening their estimates of the nation’s balance of payment deficit.
Kotak Mahindra Bank pegs the gap at US$50bil this fiscal year, versus deficits of US$39bil and US$5bil in the previous two years.
IDFC First Bank sees it widening to US$40bil to US$50bil from an estimated US$35bil in the prior period.
“The fundamental balance of payments picture continues to look weak, so the pressure on the rupee may persist,” said Rahul Bajoria, head of India economics research at BofA Securities India.
“The RBI’s steps do provide relief, but we do not know if their efficacy will remain the same over a longer period.”
This would be a record third straight financial year that the balance of payments – the broadest gauge of money flowing in and out of the economy – remains in deficit. The oil shock has coincided with global funds dumping local stocks, citing high valuations and limited artificial intelligence-linked opportunities.
In the first four months of 2026, they pulled nearly US$20bil from equities, exceeding last year’s full-year record outflow.
Net foreign direct investment was also negative for six straight months, before rebounding in February.
Against that backdrop, the RBI has relied on dollar sales as its first line of defence. India’s foreign-exchange (forex) reserves stand at US$703bil, though a negative US$78bil forward book – reflecting future dollar obligations – limits the central bank’s flexibility.
“The RBI will need to use forex reserves carefully while defending the rupee,” said Gaura Sen Gupta, chief economist at IDFC First. Another constraint for the authority is its large negative forward position, which makes it harder to manage the impact of its interventions in the currency market, she said.
All these test how far the central bank’s current playbook can go, especially as some of its tools – like intervening forcefully in currency markets – carry their own side effects. — Bloomberg
