Rupee likely to test 94.50 against dollar in near term: SBI Research

NEW DELHI— The Indian rupee could test the 94.50 level against the US dollar in the near term, even as the country’s foreign exchange reserves remain adequate to meet potential external shocks, according to a report by SBI Research released on Monday.

The report said India’s balance-of-payments surplus is expected to narrow to around $55–$60 billion in the financial year 2026-27 (FY27), highlighting the need for sustained policy measures to support the domestic currency and revive foreign capital inflows.

It noted that India’s foreign exchange reserves would remain more than adequate to meet contingencies even under the most stressed scenarios. However, it emphasised that long-term structural measures by the government would be essential to restore investor confidence and strengthen capital inflows.

The report outlined a combination of monetary and regulatory measures undertaken by the Reserve Bank of India (RBI), along with additional fiscal and tax measures that the government could consider to support the rupee.

RBI measures to support the rupee

According to SBI Research, withdrawing rupee liquidity from the banking system could help support the currency by reducing the supply of rupees.

The report said raising the upper end of the interest rate corridor by increasing the Marginal Standing Facility (MSF) rate could also make the rupee more attractive by increasing its price.

“With these measures, value of Rupee can be protected in the short term,” the report noted.

Among the measures already taken by the RBI is the opening of a direct dollar-supply window for three state-owned oil marketing companies. This shifts an estimated $10–$12 billion in monthly dollar demand away from the open spot market, easing pressure on the rupee.

The central bank has also raised the daily cash reserve ratio maintenance requirement to 99 per cent and announced open market operation sales worth Rs 25,000 crore.

These steps form part of the RBI’s broader efforts to manage liquidity conditions and maintain orderly functioning in the foreign exchange market amid pressure on the domestic currency.

Tighter rules for foreign exchange hedging

The RBI has also tightened documentation requirements for foreign exchange derivative transactions to prevent the misuse of hedging facilities.

Under the revised requirements, authorised dealers must obtain and retain an undertaking from users entering into rupee-linked foreign exchange derivative contracts to hedge contracted exposures. The undertaking must confirm that the same underlying exposure has not been hedged through another authorised dealer.

“Authorised Dealers will be required to obtain and retain an undertaking from users entering into foreign exchange derivative contracts involving INR to hedge contracted exposures, confirming that the same underlying exposure has not been hedged with any other Authorised Dealer,” the RBI said.

The central bank has additionally imposed restrictions on the rebooking of cancelled foreign exchange derivative contracts to curb potential misuse and ensure orderly market functioning.

Structural reforms needed to revive capital inflows

While the RBI’s interventions could help stabilise the rupee in the short term, SBI Research stressed that monetary and regulatory measures alone would not address the underlying challenges facing the currency.

The report highlighted the importance of long-term structural measures, including fiscal and tax policy steps, to improve investor confidence and encourage foreign capital inflows.

The projected moderation in India’s balance-of-payments surplus to $55–$60 billion in FY27 underscores the need to strengthen external-sector resilience, even as the country retains a substantial foreign exchange reserve buffer.

The report’s assessment suggests that near-term currency stability will depend partly on liquidity management and regulatory interventions, while a more durable recovery would require measures to attract investment and strengthen capital flows. (Source: IANS)