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Informist, Monday, Jun. 1, 2026

 

By Pratiksha

 

NEW DELHI – The rupee is expected to continue weakening against the dollar for the fourth consecutive month in June as global crude oil prices remain high due to the ongoing war in West Asia, market participants said. However, the Indian unit's depreciation may be limited because of the Reserve Bank of India's active intervention, they said. Most participants also expect measures by the government and the RBI to attract dollar inflows and support the Indian currency. 

 

Since the war started on Feb. 28, the Indian unit has fallen almost 4.5% against the dollar. It hit a lifetime low of 96.96 last month. The Indian unit is likely to settle at 95.25 a dollar by the end of this month, down from 95.00 at the end of May, according to the median of estimates from 17 banks and brokerages polled by Informist. Only four of these expect the rupee to fall below 96 per dollar in June. By the end of September, the Indian unit may settle at 97.00 per dollar, according to the median of estimates of seven respondents.

 

Brent crude oil prices have jumped almost 50% since the war broke out and continue to hover near the key $100 per barrel level as hopes of a peace deal between the US and Iran fade. Given this, the Indian unit will continue to depreciate as India is the world's third-largest oil importer, market participants said. 

 

India's oil imports were $174 billion in 2025-26 (Apr-Mar), down from $186 billion in FY25. India's merchandise trade deficit widened to a three-month high of $28.38 billion in April, up 4.7% on year, as imports surged. The trade deficit widened even as exports during the month were the highest in over four years. 

 

"There has been some positivity on the peace deal (between the US and Iran), but even if that happens, fundamentals won't change that quickly. The capital account and flow issue will continue," Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, said. 

 

Last month, the government raised the import duty on bullion from 6% to 15% to reduce India's import bill and ease pressure on foreign exchange reserves. However, the Indian unit derived little comfort from this measure, as market participants still expect the current account deficit to widen to 1.5-2.4% of GDP in the financial year 2026-27 (Apr-Mar), primarily driven by higher crude oil prices due to the war in West Asia. India's current account deficit was $30.1 billion, or 1.0% of GDP, in Apr-Dec.

 

With no end in sight to the war, market participants expect foreign investors to continue pulling out funds from Indian markets, exerting pressure on the rupee. So far in 2026, FPIs have pulled out $24.67 billion from Indian markets, more than double the $10.92 billion they pulled out in 2025.

 

In May, FPIs withdrew almost $4.5 billion from the 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.

 

RBI – THE SAVIOUR

Market participants expect the central bank to continue selling dollars to prevent a sharp depreciation of the domestic currency. While the central bank has been supporting the rupee since the onset of the war, it has stepped up intervention in the spot market since the local currency inched closer to the psychologically crucial 97-per-dollar level two weeks ago.

 

"... it (RBI) has recently shifted back to more aggressive intervention as the currency came under pressure from higher oil prices, geopolitical tensions, and capital outflows," Amit Pabari, managing director at CR Forex, said. "In addition, there are increasing expectations that both the RBI and the government could take further steps to encourage capital inflows and support the currency."

 

The RBI has likely been selling around $2 billion to $3 billion per day on average in the spot market over the last two weeks, according to dealers. India's foreign exchange reserves fell to an over-13-month low of $681.38 billion as of May 22. Market participants, however, pointed out that a large short forward dollar book of around $100 billion and a fall in foreign exchange reserves may constrain the central bank's capacity to intervene in the currency market.

 

Thus, they expect policymakers to implement unconventional measures to support the Indian currency. In March, the central bank announced a rarely used foreign exchange measure to support 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. 

 

While a few expect the RBI's Monetary Policy Committee to hike interest rates in its policy decision on Friday to support the Indian unit, most expect measures such as a foreign currency non-resident deposit window by the central bank to attract inflows. The policymakers could also come up with an interest subvention scheme for external commercial borrowings, the removal of withholding tax on government bonds and even a formal foreign exchange swap window for public sector oil marketing companies, they said. 

 

"We think it is now essential for India's monetary policy to back the multipronged response to the balance-of-payments shock caused by global factors. Pre-emptive rate hikes (in June) keeping future inflation at the core will constitute a strong signal to financial markets that have repeatedly tested the exchange rate and term premium, tightening financial conditions ahead of any policy shift," ANZ Bank India said in a note.

 

However, 19 of the 24 economists and market participants polled by Informist expect the Monetary Policy Committee to hold the repo rate at 5.25% at the end of its three-day meeting Friday. 

 

POLL DETAILS

 

Participant	Jun-end	Sept-end
ANZ Bank India	96.00	97.00
Bank of Baroda	95.00-96.00	-
CR Forex	94.00-94.20	-
CSB Bank	94.75-95.50	-
Finrex Treasury Advisors LLP	94.40	95.25
Globe Capital Market	94.10-96.50	-
HDFC Bank	95.00-97.00	96.00-98.00
HDFC Securities	94.00-96.00	96.75-97.25
ICICI Bank	94.00-96.00	94.00-96.00
IDFC FIRST Bank	95.00	-
Karur Vysya Bank	94.60-94.80	-
Kotak Mahindra Bank	95.40-95.00	-
Kotak Securities	95.25	96.00
Mecklai Financial Services	95.75-96.25	96.75-97.25
Private-sector bank	95.00-95.50	-
Private-sector bank	95.50-96.00	-
Tamilnad Mercantile Bank	97.50	-
Median	95.25	97.00

 

End

 

US$1 = INR 94.99

 

Edited by Deepshikha Bhardwaj

 

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