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Informist, Wednesday, Dec. 17, 2025

 

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--RBL Bk Chandak: Rupee may fall to 91.50-92.00/$1 sans India-US trade deal
--CONTEXT:Comments by RBL Bk Treasury Head Chandak in interview to Informist
--RBL Bank Chandak: Rupee may rise to 87.50-88.00/$1 if US trade deal good
--RBL Bk Chandak: Advise exporters to hedge FX exposure for a bit long term
--RBL Bk Chandak: Told importers to keep 70-80% of FX book cover for 3-4 mos
--RBL Bank Chandak: Not concerned about bond supply exceeding demand in 2026
--RBL Bank Chandak: Bloomberg bond index inclusion 2026 sort of mkt saviour
--RBL Bank Chandak: Not worried about 10-yr gilt hitting 7% as repo rate low
--RBL Bank Chandak: Ten-year gilt yield may bottom out at 6.30-6.35 26
--RBL Bank Chandak: See RBI liquidity infusion essential amid deposit slack
--RBL Bank Chandak: Banks likely to compete for deposits, keep rates high
--RBL Bank Chandak: See some shift in investor preference to bk deposit 2026
--RBL Bank Chandak: Invest books shifting to state bonds from focus on gilts
--RBL Bank Chandak: Holding longer-duration bonds may "hurt"
--RBL Bk Chandak: To leverage Emirates NBD's significant geographic presence

 

By Pratiksha and Aaryan Khanna

 

MUMBAI – The rupee may fall to as much as 91.50-92.00 a dollar in the absence of a trade deal between India and the US, but is unlikely to weaken beyond that, according to RBL Bank's Head of Treasury Anshul Chandak. On the other hand, a favourable trade deal may pull the Indian currency back to 87.50-88.00, he said. Currency market participants see reduction in US tariffs on Indian goods to 15-20% as a favourable trade deal.

 

"When such moves happen in rupee, people start talking about 94-95 (to a dollar). That is a little too stretched in my view," Chandak told Informist in an interview. "I don't think we should worry as much because we expect FPI flows to be strong next year. FDI flows also look slightly better. I don't think it should be as bad also, large part of move has happened."

 

The rupee has been weakening continuously and has depreciated over 5.5% against the dollar so far this year, primarily due to the prolonged delay in the two countries agreeing on a trade deal after the US slapped a hefty 50% tariff on imports from India in August. The Indian currency, which has been one of the worst performers amongst Asian currencies this year, hit a record low of 91.0775 on Tuesday.  

 

Since August, both countries have been negotiating a trade deal, with India particularly looking at lower US tariffs on Indian goods while the US has sought more access to the Indian market. Commerce Minister Piyush Goyal had earlier said the two sides would conclude a deal by November. With that deadline having passed, Chief Economic Adviser V. Anantha Nageswaran last week said that India and the US are likely to secure a trade deal by March. 

 

Chandak is of the view that any significant relief for the Indian unit is unlikely unless a trade deal with the US is in place. However, he also expects the Reserve Bank of India to make the most of the rupee's appreciation when the trade deal is announced and step in to buy dollars to replenish its foreign exchange reserves and to protect the interests of exporters. 

 

"So, RBI will turn to be a buyer (of dollars) as the day comes for sure. But the way momentum sort of took dollar-rupee so sharply up, we should see some sort of relief coming in. Basically, 2% (appreciation in rupee) I will not rule out," he said.  

 

Chandak termed the central bank's recent intervention strategy in the foreign exchange market as 'mild' and 'calculated', saying the interventions have acted more like speed breakers for the rupee rather than direction changers and that he expects the same pattern to continue going ahead. 

 

In terms of hedging strategy for corporates, Chandak said he has actively started advising exporters to hedge themselves for slightly long term, given the rupee's depreciation and the rise in forward premiums. The one-year dollar-rupee forward premium has jumped over 40 basis points so far this month.

On Wednesday, the one-year exact-period forward premium ended at 2.63%. On an absolute basis, the premium was 239.36 paise. The treasurer sees the one-year forward premium potentially rising to 3% going ahead.

   

"I'm just saying that at these levels, if you (exporters) get 1.5-2.0 rupee premium, then you are anyways at 92. So, you are protected to a very large extent," he said. "Also, the advice at no point is to go extremely high on their hedge book. So, whatever the philosophy they have followed of say, 40-50% of the book, just keep in that only." On the other hand, the advice to importers is to keep 70-80% of their foreign exchange exposures covered for 3-4 months, Chandak said.

 

Chandak expects the RBI to continue providing rupee liquidity to banks through open market operations and other measures. This would be essential in maintaining credit growth momentum while banks would be unable to grow deposits at the same pace, even with deposit rates unlikely to go down after the RBI's latest 25-basis-point repo rate cut in early December, he said. The banking system's credit-deposit ratio hit a record high of 80.5% on Nov. 28. The treasurer does not expect the kind of "kicker" that banks got in 2025, in which the RBI has bought gilts worth INR 6 trillion through OMOs with another INR-500-billion auction Thursday.

 

Chandak sees the bond market continuing to tread water, caught between the Indian central bank's largesse and worrying signals globally, with bond yields in several advanced economies now at multi-decade highs. On the depth of the rate cutting cycle, Chandak sees the RBI's rate-setting panel holding rates at its next meeting in February before another potential rate cut in April, depending on the transmission of the December policy action. 

 

This uncertainty about when India's rate-cutting cycle will end is likely to keep the downside on India's 10-year gilt yield limited to 6.30-6.35% in 2026, Chandak said. This would keep borrowing costs across the economy elevated for corporate issuers as well. Recently, marquee government-owned issuers such as the National Bank for Agriculture and Rural Development, the Small Industries Development Bank of India, and Power Finance Corp. have all pulled out planned bond issuances due to higher coupons since Nov. 25, before and after the repo rate cut. 

 

"But I don't see any relief rally coming across. So I'm actually surprised that they're postponing the decision to issue bonds, I do not know what would be the thought process behind it," Chandak said. The 10-year benchmark gilt yield has risen to as high as 6.63?ter hitting 6.45% on the day of the December policy announcement, when the RBI repo rate was cut to 5.25%.

 

Still, the lower funding costs for banks through the repo rate reduction in 2025 will generate enough demand to cap the 10-year gilt yield and the treasurer is not worried about the benchmark yield rising to 7% next year. The government's borrowing programme for FY27 is also likely to sail through provided it continues to reduce the issuance of long-term bonds, the treasurer said. A shift in India's savings preferences away from equity instruments and back to bank deposits could also help manage bond supply.

 

"So, reality check to large retail investors will come in that the returns that were getting generated will not continue to be the same way," Chandak said. "As that normalises, some of the euphoria also comes back to deposits and all that. We are already seeing some sort of thing (like that) in SIP (systematic investment plans) slowdown." SIP inflows in November slowed marginally to INR 294 billion from a record INR 295 billion in October. Active SIP folios fell to 94.3 million from 94.5 million the previous month.

 

The inclusion of Indian government bonds in Bloomberg's flagship Global Aggregate Index will also act as "some sort of saviour" to help absorb the supply of government bonds without pricing going awry, Chandak said. The index provider had proposed to add Indian bonds to its index in September and this is likely to be confirmed by January. Market participants expect inflows from foreign portfolio investors to begin in the new year and total up to $25 billion in 2026.

 

For his own strategy, Chandak prefers tactical calls in gilts including spread trade, sees opportunities in 'AAA' corporate paper maturing in two to three years, and otherwise wants to stay away from duration – which can "hurt". Banks are also likely to favour state bonds with the higher spreads on offer as they have cut their portfolios of such bonds in the last two years. The spread of the 10-year state bond over the 10-year gilt has risen over 100 bps twice this financial year, after floating near 40 bps since mid-2023.

 

"I think between the whole book, the balance towards G-sec got tilted significantly," Chandak said. "I think now finally we'll have a little more exposure coming across from state government bonds also."

 

The private-sector lender will also expand its treasury and other operations cross-border to leverage new parent Emirates NBD's significant geographic presence, Chandak said, but he did not provide details. The Dubai-based lender entered into an agreement with RBL Bank in October to acquire controlling stake in the private-sector bank through a primary infusion of approximately INR 268.53 billion. The proposed investment will be made via preferential issue of fresh shares of up to 60% of RBL Bank's equity capital.  End

 

US$1 = INR 90.38

 

Edited by Vandana Hingorani

 

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