The Indian rupee’s recent slide past the 91 mark against the dollar is not a cause for concern from a fundamentals perspective, but rising volatility could prompt intervention by the Reserve Bank of India (RBI), said Neelkanth Mishra, Chief Economist at Axis Bank & Head – Global Research at Axis Capital in an exclusive interview with Moneycontrol.
He expects the rupee to trade in the 91–92 range in the near term, with the RBI stepping in if currency swings become excessive.
“While the central bank may not defend a specific level, it has a clear mandate to contain volatility, and intervention is likely if quarterly depreciation moves beyond a tolerable range,” he added.
These comments came when the local currency ended at a record low level of 91.03 against the US dollar on December 15.
He noted that key indicators such as the current account deficit and the real effective exchange rate remain comfortable, with services exports growing faster than nominal GDP and lower crude oil prices offsetting higher gold imports.
The REER is at a 10-year low, suggesting the rupee is already competitive and does not require a meaningful further depreciation to support exports.
Edited excerpts:
The rupee has crossed 91 against the dollar. Should this be a cause for concern for the government or the RBI?
I don’t think we should be worried. There is no fundamental concern around the rupee at this stage. The correct way to assess currency stress is through the current account deficit, balance of payments and the real effective exchange rate (REER). On all these counts, India remains comfortable.
The current account is not in bad shape at all. Services exports are growing much faster than nominal GDP. While higher gold and silver prices have led to increased imports—partly because Indians now have higher purchasing power—this is being offset by lower crude oil prices. Overall, the current account is not a problem.
The REER is the most important indicator of export competitiveness, and it is currently at 10-year lows. That suggests the rupee is already competitive, and there is no need for a meaningful further depreciation from a fundamentals perspective.
What is driving the recent weakness in the rupee?
A lot of it is speculative positioning. The RBI had built up significant forward dollar shorts, and markets are factoring in higher global volatility and rising global cost of capital. Capital flows are generally tight right now.
Additionally, strong equity markets have enabled exits for private equity, venture capital and multinational companies, which can temporarily pressure the currency. But these are short-term factors.
Will RBI intervention be necessary in the coming months?
Yes, at some point. Currency markets lack an anchor, so the RBI will need to step in to contain volatility. Once that happens, the market will stabilise around the RBI’s tolerance zone.
Are foreign investors losing confidence in India?
Absolutely not. Strategic investors, private equity firms and global majors are committing long-term capital to India. Recent announcements of large investments, especially in technology and financial services, reinforce India’s attractiveness. These are not speculative or fly-by-night investments.
We are entering a phase of competitive currency debasement globally over the next three to five years. In such an environment, having a slightly weaker currency is not necessarily a bad thing.
How much more depreciation can we see in the near term?
Currency markets have no natural anchor like equity markets do. So, movements can overshoot in the short term. However, once volatility becomes excessive, the RBI will step in. The RBI may not defend a specific level, but it does have a mandate to manage volatility.
What rupee range are you factoring into your macro projections?
In our report, we have assumed a range of 92–94 for FY27. For the near term, till March, we expect the rupee to trade in the 91–92 range, with RBI intervention if required.
What are your expectations on government borrowing in FY27?
We are projecting a fiscal deficit of 4.2 percent of GDP for FY27. But, more important than the borrowing quantum is the maturity profile of government debt. The weighted average maturity of incremental issuance has been very high, which reduces refinancing risk but comes at a cost.
India’s yield curve is unnecessarily steep, especially towards the end of the rate-cut cycle. Term premiums of 100–130 basis points are excessive. One reason is reduced T-bill issuance over the past two years, which has tightened liquidity and steepened the curve.
If the government increases T-bill issuance, say by about Rs 3 trillion over the next year it could reduce long-term bond issuance and help flatten the curve. Greater confidence that inflation will remain low due to fiscal discipline will also help.
Do you expect further rate cuts from the RBI?
We are not expecting any more rate cuts. Growth is above trend, and the RBI has shifted to a neutral stance. It makes sense to hold rates at current levels and let the economy absorb the slack rather than overstimulating and then reversing course quickly.
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