NEW DELHI– The Reserve Bank of India (RBI) may intervene in currency markets to manage volatility after the rupee slipped below the 88 mark against the U.S. dollar, according to a report released Wednesday by CareEdge Ratings.
The agency maintained its forecast for the rupee at 85–87 per dollar by the end of fiscal year 2026, citing a softer dollar, a stronger yuan, India’s manageable current account deficit, and prospects for a U.S.–India trade agreement.
“India’s forex reserves remain healthy at around $703 billion, near an all-time high, giving the RBI scope to intervene in the currency market and curb volatility if needed,” CareEdge noted.
Analysts said short-term pressure on the rupee is expected to persist amid U.S. tariff actions, higher H-1B visa fees, and continued foreign portfolio investor (FPI) outflows. CareEdge suggested that heavy FPI selling may reflect concerns that steep tariffs could stay in place, potentially weighing on India’s growth outlook and limiting FY26 GDP expansion to around 6 percent.
Gross foreign direct investment (FDI) inflows in the first quarter of FY26 totaled $25.2 billion, but net FDI fell to about $4.9 billion as Indian companies increased overseas investments.
The global backdrop also points to shifting currency dynamics. The U.S. dollar index has weakened roughly 10 percent this year amid trade policy uncertainty, fiscal concerns, and expectations of further Federal Reserve rate cuts following a reduction in September. Meanwhile, the Chinese yuan has strengthened about 2.5 percent year-to-date, easing competitive pressures that India faced during the first trade war in 2018–19.
On the domestic front, CareEdge does not expect the RBI to cut rates at its October monetary policy meeting. However, if U.S. tariffs remain high, GDP growth could slow further, potentially opening space for an additional 25-basis-point rate cut later in FY26.
“As the U.S. Fed is expected to cut rates more aggressively than the RBI, the interest rate differential could widen in favor of the rupee, providing some support,” the report said. (Source: IANS)
