The Indian rupee continues to remain under pressure as global and domestic headwinds weigh on currency markets. According to Anindya Banerjee, Head of Currency and Interest Rate Strategy at Kotak Securities, the rupee could slip past the 92.25 level in the near term if current trends continue.
Persistent foreign portfolio investor (FPI) outflows, global trade tensions, and shifts in global bond markets are playing a key role in weakening the currency.
Small Summary
Heavy FPI outflows and global trade stress are pushing the rupee lower. The currency may test 92.25 levels soon, though the upcoming Union Budget could help stabilize sentiment.
Key Drivers Behind Rupee Weakness
FPI Outflows Continue to Hurt the Rupee
One of the main reasons for the rupee’s decline is sustained selling by foreign portfolio investors. FPIs have been reducing exposure to Indian equities and debt amid global uncertainty and higher yields in developed markets.
When FPIs pull money out, demand for dollars increases, putting direct pressure on the rupee.
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Yen Carry Trade Unwinding Adds Pressure
Another important factor is growing concern over the unwinding of the yen carry trade. Rising Japanese bond yields have made borrowing in yen less attractive. As investors exit these trades, funds are moving back to Japan, weakening emerging market currencies including the rupee.
This shift has reduced risk appetite across global markets.
Trade War Concerns Impact Currency Sentiment
Ongoing trade tensions between the United States and India have also added to the pressure. In such environments, currencies often become strategic tools. A weaker rupee can help support exports, but it also reflects rising uncertainty in global trade relations.
Short-Term Outlook and Price Targets
According to Banerjee, the rupee could drift toward the 92 level in the near term. There is also a strong possibility that it may break past this psychological level and move toward 92.25 over the next week.
However, he noted that the upcoming Union Budget could act as a positive trigger. If the budget delivers growth-friendly measures and reassures investors, it may help the rupee stabilize.
RBI’s Intervention Strategy Remains Measured
The Reserve Bank of India continues to intervene in the foreign exchange market to manage excessive volatility. However, Banerjee emphasized that the RBI is not focused on defending any specific level.
Instead, the central bank’s strategy is to slow the pace of depreciation rather than stop it completely. With domestic inflation still under control, the RBI appears comfortable allowing market forces to play out.
Why RBI Is Allowing Gradual Depreciation
A gradual depreciation helps maintain export competitiveness during periods of global stress. Given ongoing trade tensions, the rupee has become part of a broader macro strategy rather than a currency level to defend aggressively.
The RBI may wait for a shift in sentiment, possibly around the Union Budget, before taking stronger steps.
Market Implications for Investors and Businesses
Impact on Investors
- Continued FPI outflows may keep currency and equity markets volatile
- Global bond yield movements remain a key risk
- Budget-related announcements will be closely watched
Impact on Businesses
- Importers face higher costs due to a weaker rupee
- Exporters may benefit from improved pricing power
- Companies with foreign exchange exposure need stronger hedging strategies
In this environment, currency risk management has become critical for businesses involved in global trade.
What to Watch in the Coming Days
Market participants will closely track:
- Union Budget announcements
- Trends in FPI flows
- Global bond yield movements
- RBI’s currency intervention actions
Any improvement in global risk sentiment or supportive policy signals could help the rupee find near-term support.
Final Thoughts
The rupee’s weakness is driven largely by external pressures rather than domestic instability. While near-term risks remain, policy clarity and shifting global sentiment could help stabilize the currency.
For now, the market remains cautious, with 92.25 emerging as a key level to watch.