Rupee's Slide May Be Nearing End: Why India's Currency Could Rebound 5% (Investor's Guide)

The Indian rupee has been on a downward spiral, breaching the 90 mark against the US dollar. However, according to market experts, this decline may be nearing its end. The current account deficit is at a near two-decade low of 0.6% of GDP, and foreign exchange reserves have surged to $687 billion, providing a thick buffer against speculative attacks.

Macro Backdrop Looks Promising

Despite the rupee's decline, the macro backdrop looks nothing like a classic balance-of-payments crisis. Gross FDI inflows remain solid at $81 billion in FY25 and $50 billion in the first half of FY26. However, foreign portfolio investors have withdrawn $17.8 billion from local stocks in 2025, making India one of the worst relative performers in Asia ex-Japan and broader emerging markets in three decades.

Trade Policy: The Bigger Swing Factor

Trade policy is now the bigger swing factor. India has been living under the shadow of punitive US tariffs of 50% since August. A failure to clinch a deal risks pushing the already-bloated merchandise trade deficit wider, eroding the hard-won improvement in the current account and complicating the RBI's calculus.

RBI's Dovish Stance

The Reserve Bank of India, under new governor Sanjay Malhotra, has pivoted sharply to growth with 125 basis points of rate cuts this year to 5.25%. This stance is characterised as unambiguously dovish but not yet reckless. With real rates still hovering near 4.5%, India continues to offer one of the most generous inflation-adjusted yields in the emerging-market universe.

Has the Rupee Bottomed Out?

While it's difficult to say with certainty, market experts lean towards the view that the worst of the damage is likely behind. The absence of classic crisis markers such as a gaping current account gap or a rapid rundown of reserves suggests that the rupee may have bottomed out. However, the more probable path is one of frustratingly range-bound trading, with bouts of volatility around US tariff negotiations, RBI policy moves, and the ebb and flow of foreign equity flows.

Remember, this is perspective, not prediction. Do your own research and consider multiple sources before making any investment decisions.

• Key Takeaways:
• The rupee's decline may be nearing its end.
• The current account deficit is at a near two-decade low of 0.6% of GDP.
• Foreign exchange reserves have surged to $687 billion.
• Trade policy is now the bigger swing factor.
• The RBI's dovish stance may support the rupee once risk sentiment stabilises.