Indian Rupee has seen some appreciation and is currently holding above the crucial 94 against US dollar. However, economists at Axis Bank Research don’t expect the newfound strength to last long and see the currency weakening towards that psychologically important 100 per dollar levels by next June.
Axis Bank cited slowdown in AI-related investments in the US and low forex reserve adequacy among the key concerns.
What’s the big worry for the rupee?
India has already lost significant financial savings to FPI outflows in the AI rally, according to Axis Bnak. “More fragmented AI regulation and slower expansion in the US can bring back some lost savings to India,” Axis Bank noted.
India’s financeable current account deficit (CAD) may come back to around 0.8% of GDP, according to Axis Bank Research, as a reversal of foreign portfolio investor outflows over the past 12 months could improve India’s external financing position.
Higher foreign investment inflows would increase the supply of dollars in the domestic market and support the rupee. However, the brokerage believes these developments may not be enough to reverse the currency’s broader weakness.
Low forex reserve adequacy remains a concern
The report highlighted that India’s foreign exchange (forex) reserve adequacy remains low under both traditional measures and the International Monetary Fund’s Assessing Reserve Adequacy (ARA) metric.
Axis Bank Research said, “India’s foreign exchange reserve adequacy remains low across both traditional measures and the IMF’s Assessing Reserve Adequacy (ARA) metric, indicating the need to rebuild buffers.”
Adequate forex reserves help a country meet its external payment obligations and manage periods of currency volatility. Lower reserve adequacy can limit the central bank’s ability to manage external shocks.
Lower crude oil prices may offer limited relief
Brent crude is near $92 per barrel currently, down from approximately $100 per barrel for months. However, a decline in crude oil prices may not provide significant support to the rupee, according to Axis Bank Research.
India imports a large share of its crude oil requirements, making the currency sensitive to movements in global oil prices. Lower crude prices generally reduce the import bill and ease demand for dollars.
However, Axis Bank Research noted, “the rupee began losing value even when the current account deficit was low, suggesting that a decline in crude prices alone may not meaningfully alter the currency outlook.”
External debt repayments could add pressure
The brokerage also flagged India’s external liabilities as a key risk for the rupee.
“RBI short positions are significant, with approximately $200 billion in the one-year-plus maturity range, including around $150 billion in the 3–5-year bucket,” Axis Bank noted.
These obligations could increase demand for dollars as borrowers meet their overseas repayment commitments, adding to pressure on the domestic currency.
Global savings crunch could limit foreign investment
According to Axis Bank Research, the impact of rising geopolitical tensions and government debt on global savings.
“A decline in global savings, alongside rising government debt amid geopolitical conflicts, could limit the availability of capital seeking investment opportunities in Indian assets,” Axis Bank noted.
Axis Bank Research said it continued to maintain its forecast of the rupee weakening to 100 against the US dollar by June 2027. They expects the impact of recent positive momentum, supported by RBI intervention and the possibility of foreign capital returning to India, to fade over time. They highlighted that underlying fundamentals, including low forex reserve adequacy, external liabilities and limited global investment flows, will continue to weigh on the domestic currency.
This article was first uploaded on November twelve, twenty twenty-six, at nineteen minutes past two in the afternoon.
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