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Informist, Tuesday, May 5, 2026

 

By Pratiksha

 

NEW DELHI - The rupee is expected to continue to slide and set new record lows against the dollar this month as international crude oil prices remain high due to the war in West Asia, market participants said. Since the war started on Feb. 28, the Indian unit has fallen 4.5% against the dollar. It hit a new lifetime low of 95.4025 Tuesday.

 

The Indian unit is likely to settle at 95.20 a dollar by the end of this month, down from 94.91 at the end of April, according to the median of estimates from 13 banks and brokerages polled by Informist. As many as five of these expect the rupee to fall to 96 to a dollar in May and one even expects it to fall to 97. By the end of June, the Indian unit may settle at 95.50 a dollar, according to the median of estimates of 11 respondents.

 

The rupee will continue to fall as India is the third-largest oil importer in the world, market participants said. India's oil imports were at $174 billion in 2025-26 (Apr-Mar), compared to $186 billion in FY25.

 

Brent crude oil prices have jumped almost 60% since the war broke out. Peace negotiations between the US and Iran have stalled and the US has imposed a blockade on Iranian ports while Iran has kept the Strait of Hormuz shut.

 

Chief Economic Adviser V. Anantha Nageswaran expects India's current account deficit to widen to over 2% of GDP in 2026-27 (Apr-Mar). India's current account deficit was $13.2 billion, or 1.3% of GDP in the December quarter. India's trade deficit fell to $20.67 billion in March from $21.69 billion a year ago and $27.10 billion a month ago despite the war in West Asia disrupting trade across the region. Gold imports fell almost 32% on year in March to $3.06 billion and this probably was the major cause for the lower deficit. Whether this will sustain is anyone's guess.

 

Meanwhile, traders' bets against the Indian currency are piling up as there seems to be no end in sight to the war, poll respondents said. Hence, the exodus of foreign investors from Indian markets will go on and this will continue to exert pressure on the rupee, they said. 

 

So far in 2026, FPIs have pulled out $19.48 billion from Indian markets, almost double the $10.92 billion they pulled out in the whole of 2025. In April, FPIs withdrew almost $6 billion worth of funds from domestic market and if a peace deal between the US and Iran is not brokered this month as well, market participants expect outflows to continue at a similar pace. In case of any major escalation in the war and a spike in crude oil prices, FPI outflows may accelerate further, they said.

 

"In our view, high global real interest rates, the absence of tech-led growth narratives in India, and geopolitical risks together impart a structural character to India's capital flow challenge," Dhiraj Nim, FX strategist at ANZ Bank India, said. "Elevated oil prices further threaten the growth and inflation dynamics that have long underpinned macro stability." 

 

RBI - THE DEFENDER

Market participants expect the Reserve Bank of India to continue with its dollar sales to prevent a sharp depreciation of the domestic currency. However, they don't see the central bank heavily depleting its foreign exchange reserves to support the rupee at a time when none of the factors are working in its favour.

 

In March, the RBI sold almost $15 billion-$20 billion dollars in the foreign exchange market to support the rupee, dealers said. On Mar. 27, the central bank announced a rarely used foreign exchange measure to defend the Indian unit and directed banks to ensure their net open rupee positions in the onshore market did not exceed $100 ‌million at the end of each business day. On Apr. 1, it further doubled down on its support for the rupee and prohibited banks from offering rupee non-deliverable derivative contracts to resident or non-resident clients. Largely due to these measures, the rupee jumped to 92.40 on Apr. 10 from its low of 95.22 on Mar. 30, reversing more than half its fall after the war broke out.

 

However, the gains were short-lived. The RBI withdrew its Apr. 1 directions after 20 days and crude oil prices spiked, which prompted the central bank to sell around $5 billion-$7 billion dollars in the spot market in the last 10 days of April, some dealers said. If crude oil prices continue to stay above $110 per barrel in May and FPI outflows continue, some market participants expect the central bank to sell around $1.5-$2 billion on an average per day.

 

"While the RBI intervenes to stabilise currency movements, it cannot resolve the underlying imbalance caused by high energy import costs," Gaurav Sharma, associate vice-president and head of research at Globe Capital Market Ltd., said.

 

"So far, RBI intervention in the spot market has been present but not very aggressive. If the geopolitical tensions continue, it is unlikely that the RBI will rely only on spot intervention," Amit Pabari, managing director at CR Forex, said. "Based on past actions, there is a strong possibility that the RBI may introduce additional or innovative measures to manage the currency, such as encouraging inflows through FCNR (B) (foreign currency non-resident bank) deposits," he added. 

 

Nim also sees the likelihood of policymakers considering unconventional external capital-raising measures to attract inflows, as seen in past episodes through special bonds and deposit schemes. 

 

Further, a record high short forward dollar book and a fall in foreign exchange reserves may also constrain the central bank's capacity to intervene in the currency market, market participants said. The RBI's net outstanding sales of dollar-rupee forward contracts rose to a record $103.06 billion at the end of March. India's foreign exchange reserves were at $698.49 billion as of Apr. 24, almost $30 billion lower from the record high just before the war started. However, latest data for Apr. 24 shows foreign exchange reserves rose around $10 billion on month.

 

Whatever the case, market participants are of the view that the central bank's steps may only prove effective in the long term if India's current account deficit picture improves.

 

POLL DETAILS

 

Participant	May-end	Jun-end
ANZ Bank India	-	96.00
Bank of Baroda	94.00	95.00
CR Forex	94.20-94.50	-
Finrex Treasury Advisors LLP	94.50	95.50
Globe Capital Market	93.30-96.20	92.30-96.80
HDFC Bank	95.00-96.00	94.00-96.00
HDFC Securities	95.20	95.90
ICICI Bank	95.00	94.00
Kotak Mahindra Bank	95.50-96.00	95.50-96.00
Kotak Securities	95.50	94.50
LKP Securities	96.50-97.00	97.00-98.50
Mecklai Financial Services	95.50	95.00
Shinhan Bank India	94.20-96.25	93.80-96.00
UCO Bank	94.10	-
Median	95.20	95.50

 

End

 

US$1 = INR 95.35

 

Edited by Vandana Hingorani

 

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