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Informist, Saturday, Jul. 4, 2026

 

NEW DELHI – The rupee has been influenced by India's balance of payments in the past 20 financial years but the correlation is modest, India Ratings and Research said in a report Friday. Following the decline in crude oil prices, the ratings agency has an improved outlook on both India's current account deficit in 2026-27 (Apr-Mar) and the domestic currency.

 

"We expect CAD/GDP to reduce to 1.7% and INR/USD to average at 93.1 in FY27 following the ease in crude prices due to the fragile resolution of the West Asia crisis, compared to our May 2026 forecast of 2.6% and 94.37, respectively," economist Megha Arora, director at India Ratings, said. Brent crude futures have slumped to near their pre-war level of approximately $70 a barrel from a peak around $120 per barrel in May.

A balance of payments surplus leads to a stronger domestic currency, but the correlation was not seen every year in the analysis conducted for FY07-FY26, the report said. In the 80 quarters of data, the correlation between the change in the rupee and the current account was only a negative 0.08. The capital account balance alone has a higher correlation of negative 0.35 with the rupee, according to the analysis.

 

Factors such as India's economic growth, geopolitical situation, crude oil prices, and central bank policy decisions drive down the correlation of the rupee with the balance of payments, India Ratings said. India's current account was in a deficit of $25.2 billion during FY26, slightly higher than $22.9 billion a year ago. As a share of GDP, the deficit remained unchanged in FY26 at 0.6%.

 

The balance of payments deficit was slightly lower at $23.6 billion in FY26. India saw its current account in surplus in only eight out of the 80 quarters in the past 20 years while the capital account has been in surplus barring six quarters, the report said. A surplus in balance of payments generally adds to India's foreign exchange reserves and results in a stronger rupee.

 

In FY25 and FY26, India witnessed the lowest net foreign direct investments in the past 20 years, while the net portfolio investment in the past financial year was the lowest since FY07, the report said. Foreign portfolio investment recorded a net outflow of $16.4 billion in FY26 and a net inflow of $3.6 billion in FY25. Net inflow under foreign direct investment was $6.9 billion during FY26 and $1.0 billion during FY25. This led to the rupee recording its "worst annual average" of around 84.6 a dollar in FY25 and 88.4 per dollar in FY26, the ratings agency said.  End

 

US$1 = INR 95.21

 

Reported by Shweta and Aaryan Khanna

Edited by Deepshikha Bhardwaj

 

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