Rupee May Weaken Further Against US Dollar

The Indian rupee may continue to face pressure against the US dollar despite a recovery in foreign portfolio investor (FPI) inflows, according to an economic research report by IDFC First Bank. The report attributes the limited scope for the rupee's appreciation to the Reserve Bank of India's (RBI) substantial net short position in the forward market. As of September 2026, the RBI's net dollar short position in its forward book stood at $239 billion. When buy-sell swaps mature, the central bank will have to return dollars to the market, potentially requiring it to source foreign currency from incoming investment flows. This could restrict a significant appreciation of the rupee. Of the total exposure, $40 billion is due within one year, $56 billion in one to three years, and $143 billion in three to five years, with the latter largely linked to the FCNR(B) deposit scheme.

The report also noted that elevated US Treasury yields and competition from the United States for global investment flows could keep the rupee under pressure in the medium term. IDFC First Bank expects the rupee to trade at ₹92–94 per dollar by December 2026, weaken to ₹94–95 by March 2027 and reach ₹96 by June 2027. It also expects the RBI to consider interest rate hikes of 25 basis points each during its December and February policy reviews, with another possible 25-basis-point increase in April if necessary. These projections indicate continued challenges for the Indian currency amid global financial uncertainty.