INR vs USD: Indian rupee has fallen 30% against US dollar since 2014. More pain ahead?

INR vs USD: The Indian rupee traded within a tight range on Thursday, with market participants pointing to flows from importers and exporters as the quarter-end approaches, while dollar-rupee forward premiums stayed firm near multi-month highs.

At 10:30 a.m. IST, the rupee stood at 88.6250 against the US dollar, marginally stronger than Wednesday’s close of 88.69.

Earlier this week, the currency touched a record low of 88.7975 and has fallen more than 3 per cent this quarter, marking its steepest decline since the April–June 2022 quarter.

As per the data available, the rupee has fallen nearly 30.6 per cent against the US dollar since 2014.

“The Indian rupee has crossed the 88 level against the dollar and is trading near record lows. Unlike most major currencies that have appreciated year-to-date, the rupee has depreciated, pressured by the implementation of US secondary tariffs, the recent announcement of a hike in H-1B visa fees, and sustained foreign portfolio investor (FPI) outflows,” said brokerage firm Care Edge in a note.

The brokerage firm anticipates the rupee to remain under pressure. “However, the Reserve Bank of India (RBI) is likely to step in to curb currency volatility. That said, we maintain our FY26-end forecast of 85–87 for USD/INR, supported by a soft dollar, firm yuan, India’s manageable current account deficit, and the prospect of a US–India trade deal,” the firm added.

Factors that are still supporting the rupee:

According to the Care Edge report, these are some of the factors supporting the Indian Rupee.

Weak Dollar

The dollar index has weakened by about 10% current year-to-date (CYTD), weighed down by US trade policy. The Fed cut its policy rate by 25 bps in September, and the median dot plot now signals two more cuts this year, up from one previously. Weak labour market data has reinforced market expectations of further easing uncertainty, fiscal concerns, and expectations of Fed rate cuts.

Firm Yuan

The yuan has appreciated 2.5 per cent against the dollar CYTD. The move has been supported by a weaker dollar and sharp reductions in US tariff rates from triple-digits, which have improved China’s growth outlook.

The weaker dollar, stronger daily fixings by the PBOC, and buoyant Chinese equity markets are likely to support the yuan in the near term.

Manageable current account deficit and BoP

The brokerage firm expects India’s current account deficit (CAD) to stay manageable at 0.9% of GDP in FY26, supported by range-bound crude oil prices and resilient services exports.

“Our baseline assumes US tariffs at 15-20%. However, if the 50% tariff persists, CAD could widen slightly to 1.2–1.3% of GDP but would still remain manageable,” CareEdge said.

FPI flows have also been uneven, with year-to-date net FPI outflows at around $10 billion, driven by equity outflows and partly offset by debt inflows.

Favourable domestic factors

Low inflation, RBI rate cuts, and lower tax burden support India’s growth story, still positioning it as the fastest-growing major economy. In particular, the recent GST reform is a key development, marking an important milestone in India’s indirect tax journey. The reform introduces a simplified two-tier GST structure, comprising a 5% and an 18% rate, along with a special de-merit rate of 40% for select goods and services.

Rupee outlook in near-term

The brokerage firm said that the near-term pressures may keep the rupee in the 88–89 range, driven by uncertainties around the US–India trade deal and the recent announcement of a hike in US H-1B visa fees, which is weighing on market sentiment.

“We maintain our FY26-end forecast of 85–87 for USD/INR, supported by a soft dollar, a firm yuan, India’s manageable CAD, and the potential for a US– India trade deal. On a REER basis, the rupee is undervalued and below its five-year average,suggesting some scope for appreciation in the medium term. Nevertheless, US–India trade negotiations, along with US visa policies, will be key to monitor for their impact on market sentiment and FPI flows,” it added.

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