A sliding rupee poses risk of imported inflation, says Economic Survey

Indian rupee

• Indian rupee hits all-time low, raising concerns of imported inflation
• RBI intervention to protect rupee has been limited despite recent pressures
• IMF projects India's inflation at 2.8 percent in FY26 and 4 percent in FY27

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Depreciation of the rupee could pave way for the imported inflation, the Economic Survey tabled by finance minister Nirmala Sitharaman on January 29 has said but added that global commodity prices are expected to remain soft, limiting the impact.

The local currency, which has been sliding for the past few months, hit a new low of 92.0163 against the US dollar in the morning ahead of the release of the survey.

In a break from convention the Economic Survey, typically released a day ahead of the Budget, was released three days in advance.

The domestic currency has been under pressure in the past few months, especially after the US imposed 50 percent tariffs on India. Dumping of Indian equities by the foreign investors, delay in India-US trade deal and rally in the Japanese bond yield have added to the pressure.

Even after this, the intervention by the Reserve Bank of India (RBI) remained limited to protect the currency from the sharp depreciation.

The survey said India’s inflation, headline and core, excluding precious metals, will likely be higher in FY27 than in FY26.

In December, the RBI revised its inflation projections for FY26 from 2.6 per cent to 2 percent, owing to a good kharif harvest and healthy rabi sowing. The IMF has projected an inflation rate of 2.8 percent in FY26 and 4 percent in FY27, the survey said.

The RBI’s forecast for headline Inflation for Q1 and Q2 of FY27 currently stands at 3.9 and 4 per cent, survey added.

On January 22, a Moneycontrol poll of 14 economists, bank treasury heads and fund managers on RBI policy expectation on rate action in February found that experts were divided on the Consumer Price Index (CPI) inflation projections. Some experts said the central bank may remain in wait and watch mode before revising inflation forecast ahead of the new base year series for GDP and CPI.

India’s inflation firmed up in December, rising to a three-month high of 1.33 percent from 0.7 percent in November, government data released on January 12 showed.

Even with the uptick, headline inflation has now stayed below the RBI’s lower tolerance threshold of 2 percent for four consecutive months, underlining how price pressures have cooled meaningfully since the middle of the year.