Indian Rupee Expected to Approach 99 Against US Dollar Amid Economic Pressures

Economic Outlook for the Indian Rupee

According to Ajay Khandelwal, Fund Manager at Motilal Oswal Asset Management Company, the Indian Rupee is projected to hit the 99 mark against the US Dollar due to ongoing foreign portfolio investor (FPI) outflows and high crude oil prices. In a discussion with a digital news platform, Khandelwal noted that the combination of FPI withdrawals and increased crude import expenses has placed significant pressure on the Rupee, resulting in approximately 7% depreciation year-to-date and a 13% decline since late 2024.

He mentioned that the Rupee appears to be undervalued based on the Real Effective Exchange Rate (REER), currently around 93, which is the lowest since the 2013 'Fragile Five' crisis. This undervaluation could offer some medium-term support unless FPI outflows and adverse balance of payments (BoP) conditions persist.

Khandelwal suggested that the Rupee could reach the 98-99 range, indicating that the Reserve Bank of India (RBI) seems to be signaling a willingness to allow further depreciation, especially given the recent trends and the lack of relief in global oil prices.

Foreign Investment Trends

Recent data from the National Securities Depository Limited (NSDL) reveals that foreign investors have continued to withdraw from Indian equities, with net outflows totaling ₹27,048 crore this month alone. Cumulatively, FPIs have exited ₹2.2 lakh crore from Indian equity markets in 2026, surpassing the ₹1.66 lakh crore withdrawn throughout 2025.

Potential RBI Interventions

When asked about the RBI's potential actions to stabilize the falling Rupee, Khandelwal expressed that while the government may implement additional measures to limit FX outflows, such as tightening overseas direct investment routes or enhancing currency swap agreements, it is unlikely that they will utilize foreign exchange reserves as aggressively as in the past.

He also indicated that the weakened Rupee, coupled with ongoing conflicts in West Asia, could lead to a possible interest rate hike by the RBI. If current conditions persist into 2026, the RBI might consider gradual rate increases, which could raise household EMI costs.

Concerns Over Gold Imports

Prime Minister Narendra Modi has recently urged citizens to refrain from purchasing gold for a year to reduce gold imports, thereby conserving foreign exchange reserves and strengthening the Rupee. Khandelwal anticipates a current account deficit (CAD) of approximately 2.5% of GDP for FY27, assuming oil prices remain above $90 per barrel. He highlighted that the more pressing issue is the BoP deficit, which could expand to around $85 billion due to weak capital inflows, potentially marking India's first instance of three consecutive years of BoP deficits.

Impact on Households

Khandelwal warned that a prolonged FPI sell-off could further weaken the Rupee and escalate imported inflation, particularly through rising fuel and commodity prices. This situation may keep interest rates elevated, increasing EMI burdens for households. However, he does not foresee a significant market downturn, as Indian equities are still supported by strong fundamentals and reasonable valuations following recent corrections.

Recent policy measures, including restrictions on gold and silver imports and potential retail fuel price hikes, reflect growing government concerns regarding external sector pressures and the sustainability of the BoP position. Khandelwal predicts that the average Rupee value for FY27 will be around 97 per dollar, compared to 88 in FY26.