Outlook
Outlook INR is likely to remain range-bound in the near term as persistent CAD pressures, oil import reliance, and global risk factors weigh on the rupee. The RBI’s flexible intervention approach should help smooth volatility, but substantial moves will hinge on oil prices, foreign investor flows, and the path of U.S. rates. If oil stabilises or falls and FPIs resume buying Indian assets, the INR could edge modestly firmer.
Key drivers
- Persistent Current Account Deficit (CAD) driven by a widening trade gap and crude oil imports weighs on the INR.
- Intermittent Foreign Portfolio Investment (FPI) outflows from Indian equities and debt markets reflect global risk sentiment and U.S. rate expectations.
- Weak manufacturing exports amid soft global demand adds pressure on the rupee.
- Narrowing policy rate differential with the U.S. influences investor behavior and INR direction.
- RBI's intervention strategy uses a flexible exchange rate to smooth volatility rather than defend a fixed level.
- Geopolitical tensions can trigger risk-off moves and impact INR stability.
- U.S. tariffs on Indian exports affect trade balances and investor sentiment.
Range
INR/USD is near 0.011044, within a 0.010864 to 0.011300 range (4.0% range) and at 7-day highs.
INR/EUR is 0.009303, about 1.7% below its 3-month average of 0.009463, trading in a 0.009085 to 0.009803 range.
INR/GBP is 0.008089, about 2.0% below its 3-month average of 0.008254, trading in a 0.007872 to 0.008659 range.
INR/JPY is 1.6856, 2.6% below its 3-month average of 1.7308, trading in a 1.6648 to 1.7759 range (14-day low).
What could change it
- A shift in global risk appetite or U.S. rate expectations that alters foreign investor flows into Indian assets.
- A sustained move in oil prices (especially a decline) improving the CAD outlook.
- A clearer path for U.S. rates or a change in the policy rate differential that attracts capital to India.
- RBI policy messaging or actions that reduce volatility while allowing gradual rupee adjustment.
- Improvement in external accounts or in export performance supporting INR.
- Geopolitical developments that reduce risk premia or, conversely, escalate risk and weigh on the rupee.
