By Subhadip Sircar
India’s efforts to steady the beleaguered rupee are likely to get harder in the coming months, as insufficient capital inflows replace speculative bets as the main pressure point.
The Reserve Bank of India took aggressive steps recently to curb speculation, yet the currency fell to a record closing low on Wednesday. With the US-Iran war — now entering a third month — keeping oil prices elevated, and capital inflows muted, economists are widening their estimates of the nation’s balance of payment deficit.
Kotak Mahindra Bank pegs the gap at $50 billion this fiscal year, versus deficits of $39 billion and $5 billion in the previous two years. IDFC First Bank sees it widening to $40 billion—$50 billion from an estimated $35 billion in the prior period.
“The fundamental balance of payments picture continues to look weak, so the pressure on the rupee may persist,” said Rahul Bajoria, head of India economics research at BofA Securities India. “The RBI’s steps do provide relief, but we do not know if their efficacy will remain the same over a longer period.”
This would be a record third straight financial year that the balance of payments — the broadest gauge of money flowing in and out of the economy — remains in deficit.
The oil shock has coincided with global funds dumping local stocks, citing high valuations and limited artificial intelligence-linked opportunities. In the first four months of 2026, they pulled nearly $20 billion from equities, exceeding last year’s full-year record outflow. Net foreign direct investment was also negative for six straight months, before rebounding in February.
Against that backdrop, the RBI has relied on dollar sales as its first line of defense. India’s forex reserves stand at $703 billion, though a negative $78 billion forward book — reflecting future dollar obligations — limits the central bank’s flexibility.
All these test how far the central bank’s current playbook can go, especially as some of its tools — like intervening forcefully in currency markets — carry their own side effects.
Most analysts expect the rupee to stay on a weaker path. BofA has lowered its rupee forecast to 94 per dollar by mid-year from 89 earlier. IDFC First Bank Ltd. sees the unit weakening to 95-96 range despite the RBI’s support, while Barclays Bank Plc has a year-end forecast of 96.80. The rupee fell 0.3% to 94.85 on Wednesday.
If oil prices average $85—$90 a barrel through fiscal 2027, the RBI may need to look at options such as easing borrowing rules to boost dollar inflows and pushing exporters to repatriate earnings faster, according to Standard Chartered Plc economists including Anubhuti Sahay.
Analysts at Goldman Sachs Group Inc. this week lifted their oil-price forecasts due to the prolonged closure of the Strait of Hormuz. They now see Brent averaging $90 a barrel in the fourth quarter, up from a previous outlook for $80.
“A comprehensive set of measures are required,” State Bank of India Chief Economic Adviser Soumya Kanti Ghosh wrote in a note. The “exchange rate cannot be construed as a shock-absorbing mechanism in perpetuity.”