A steep fall in crude oil prices following easing of tensions in West Asia may not be enough to help the Indian rupee appreciate, according to eight top economists polled by Mint.
Most expect the rupee to remain range-bound at 94-96 against the US dollar in the near term before gradually weakening again by March 2027.
Between the beginning of the war on 28 February and the signing of a memorandum of understanding (MoU) between the US and Iran on 17 June, crude prices were highly volatile, touching levels of $114 per barrel in May before falling to around $72 after the ceasefire, data from Bloomberg showed.
During this period, the rupee depreciated more than 3% to hit a record-low of 96.82 against the US dollar on 20 May. In FY26, the local unit had depreciated by 11%. On Monday, the Indian rupee closed (provisional) at 95.4 against the greenback.
However, the economists polled retained their FY27 rupee forecasts despite the sharp fall in oil prices, suggesting that the currency is unlikely to see a sustained appreciation from current levels.
Even though recent measures by the Reserve Bank of India (RBI) to attract foreign capital have reduced the risk of a sharper depreciation in the rupee, the economists said there is unlikely to be a meaningful appreciation because the central bank is expected to absorb much of the additional dollar inflows into its foreign exchange reserves rather than allow them to boost liquidity in the spot market.
The current trading range of 94.5-95.5 is a fair value for the rupee and has effectively become its new equilibrium, according to Madan Sabnavis, chief economist at Bank of Baroda. “I still stick to it,” he said.
Sabnavis said the RBI's recent communication had helped calm markets after the war-induced volatility, but he added that the central bank's measures to encourage foreign currency non-resident (FCNR) deposits would not materially increase the supply of dollars in the domestic market as the incoming dollars would be exchanged with RBI and kept as reserves.
“So, the rupee is not going to appreciate,” Sabnavis said.
On 5 June, the RBI announced a slew of measures to encourage capital inflows, including bearing hedging costs of FCNR deposits for banks, and external commercial borrowings raised by public sector companies and banks.
Gaura Sengupta, chief economist at IDFC First Bank, echoed a similar view, saying the RBI’s reserve management strategy would prevent excess dollar inflows from flooding the spot market.
“RBI’s reserve management will tend to be towards building FX reserves,” Sengupta said, adding that extra inflows would be absorbed by the central bank and won’t stay in the market.
India's foreign exchange reserves have fallen by $61.6 billion since the war broke to $666.9 billion as of 26 June, according to RBI data.
India's foreign exchange reserves declined by $61.6 billion during the conflict to $666.9 billion as of 26 June, according to RBI data.
In fact, Sengupta expects the rupee to gradually depreciate towards 96.5 by March 2027—although at a much slower pace than before—after strengthening marginally to around 94.5 in the near term.
She added that the RBI is also likely to use the inflows to replace its large outstanding forward book, with around $107 billion of buy-sell swaps currently outstanding and more than $100 billion maturing over the next two years.
Economists also pointed to improving prospects for capital inflows beyond the RBI's special measures. India's chances of inclusion in the Bloomberg Global Aggregate Bond Index have improved after the government removed withholding tax and capital gains tax on eligible government securities, potentially attracting additional foreign debt inflows over time.
However, these flows alone may not materially strengthen the rupee unless they become sustained, said Upasana Bharadwaj, chief economist at Kotak Mahindra Bank.
According to Bharadwaj, RBI’s measures have largely eliminated the worst-case scenario for the currency without changing its longer-term trajectory.
“The measures themselves are swap measures, which do not directly impact the spot market,” she said. “While it takes care of a lot of problems which were suggesting that the rupee could fall towards 98-plus levels, what has happened is… prospects have definitely improved. So, it has capped the upside that we were expecting to see in dollar-rupee.”
She also said that the rupee is unlikely to either appreciate or depreciate sharply from current levels, forecasting the currency in the 95-96 range by March 2027.
So far in the current financial year, foreign portfolio investors have pulled out $14.77 billion from Indian equities, whereas the debt market has seen inflows of $5.54 billion, according to data by National Securities Depository Limited.
Others have also retained their forecasts.
Anubhuti Sahay, head of India economic research at Standard Chartered Bank, said the lender has also retained its March 2027 forecast of 96 per US dollar, while noting that any additional measures by the RBI or the government to sustain capital inflows could alter the outlook.
“In the near term, maybe we can see a little bit more appreciation because the FCNR flows would start hitting now… But over the next five to six months, once the one-off increase in capital inflows slows down, then we expect the depreciation pressure to resume,” Sahay said.
Sameer Narang, chief economist at ICICI Bank, offered a relatively more optimistic view, arguing that the rupee's stability should also be seen against the backdrop of weakness across other Asian currencies.
“If you look at the other Asian peers, they are all depreciating still. The rupee is largely stable now,” said Narang.
His view was the most bullish among the economists surveyed—he retained an appreciating bias and expects the rupee to trade in the 93-95 range by March 2027.