The Indian rupee's sharp rebound from near a record low is set to lose steam as high oil prices and persistent dollar demand limit further gains. The currency weakened 0.4% to 94.8262 on Thursday, ending an eight-day rally that had taken it to a four-month high. Bank of America Corp. sees the rupee weakening to 98 per dollar by year-end, United Overseas Bank Ltd. forecasts 97, while Danske Bank A/S sees 96.64.
The Reserve Bank of India's most aggressive measures in more than a decade have given the rupee some breathing room, but pressure is likely to return unless inflation eases, real yields improve or the economy strengthens. Consumer-price growth hit an almost two-year high in September, while oil above $110 a barrel adds to import costs. Strategists say the steps have curbed dollar demand without addressing pressure from high oil prices.
The special dollar window for state refiners is unlikely to be a game changer because oil payments will continue, drawing down foreign-exchange reserves. The bigger challenge is capital flows, with net foreign direct investment dropping and the currency more dependent on volatile portfolio flows. Bank of America sees the rupee at 99 per dollar by the end of 2027, while MUFG forecasts 97.50 by September.
Ultimately, underlying pressure on the rupee to ease would require changes in fundamental flows to India.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing