By Pranoy Krishna
BENGALURU (Reuters) – The Indian rupee will eke out very modest gains this year, trailing most of its Asian peers as the U.S. dollar retreats, according to a Reuters poll of foreign exchange strategists.
A partially convertible currency, the rupee has barely made any advances against the greenback this year, placing it among the worst performers in Asia. It has not received much support from news of unexpectedly strong growth in the last quarter, either.
The U.S. dollar has been knocked off its perch over concerns about U.S. President Donald Trump’s erratic tariff policy and more recently because of a ballooning fiscal deficit after the House of Representatives passed a sweeping tax cut and spending bill.
Most strategists in the May 30–June 4 Reuters poll did not expect the rupee to make any substantial gains from here, despite widespread expectations for a greenback decline over the coming months due to falling demand for dollar-denominated assets.
Over the next three months, the rupee was forecast to gain about 0.8%, trading at 85.25 per dollar by end-August, and then trade at 85.10 in six months and 85.25 in a year, the poll of 41 FX strategists showed.
As of Wednesday, the rupee was down roughly 0.3% for the year against the greenback, while regional peers such as the Korean won, Thai baht, Malaysian ringgit and Philippine peso all gained over 4%.
That tepid outlook comes even as Asia’s third-largest economy posted robust 7.4% growth in the January–March quarter, far exceeding forecasts and marking the fastest rise since early 2024.
“The rupee is on somewhat stable footing right now and is likely to hold steady, especially in a weak dollar environment,” said Dhiraj Nim, FX strategist at ANZ.
“Q1 GDP came in much stronger than expected, adding upside risk to India’s growth story. But in any global risk-off scenario, capital tends to seek safety. And I don’t think India is where global capital can find safety.”
The Reserve Bank of India (RBI) is expected to cut interest rates by 25 basis points to 5.75% on Friday and by another quarter point to 5.50% later in the year. But the cumulative 100 basis points of cuts expected is one of the shallowest campaigns in over a decade.
ANZ’s Nim also said the RBI is likely intervening intermittently in the currency market to keep rupee volatility in check.
Having already committed to selling billions of dollars through derivatives contracts in the future, the RBI is expected to buy back substantial amounts of U.S. dollars to maintain its foreign exchange reserves, currently around $693 billion.
These dollar purchases are expected to put additional pressure on the rupee, which has fallen over 2% since its near seven-month high on May 2, limiting its ability to strengthen further.
“We expect the rupee to underperform peers even as the dollar remains under pressure,” wrote Mitul Kotecha, head of FX and EM macro strategy Asia at Barclays.
“Following the end of Shaktikanta Das’ term as RBI governor, we had noted a regime change for the INR, as the currency transitions to a more flexible trading range, while resuming its long-term depreciation trend. We believe the recent bout of INR strength…is unlikely to be sustained.”
(Other stories from the June Reuters foreign exchange poll)
(Reporting by Pranoy Krishna; Polling by Susobhan Sarkar; Editing by Hari Kishan, Ross Finley and Bernadette Baum)
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