Rupee Depreciation Likely to Ease in 2026, SBI Says
The Indian rupee, which fell nearly 5% in 2025, is expected to stabilise in 2026, according to SBI Funds Management.
The currency underperformed most emerging-market peers last year despite a weaker US dollar globally.
SBI predicts the rupee will depreciate by only around 2% in the financial year 2026-27, with the exchange rate likely hovering near ₹92 per US dollar. Analysts say this outlook is supported by domestic fundamentals and improving global conditions.
Domestic Factors Supporting the Rupee
Several domestic factors are expected to limit rupee volatility in 2026. India’s current account deficit (CAD) is projected to remain below 1% of GDP. Strong services exports and lower crude oil prices will help keep the deficit under control.
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Inflation is expected to remain close to the Reserve Bank of India’s 4% target, reducing risks of sudden macroeconomic shocks. SBI also notes that the rupee’s real effective exchange rate has dropped to about 5% below its estimated fair value.
This decline improves India’s competitiveness and provides a buffer against further depreciation.
Global Conditions to Favor Emerging Currencies
Global developments could also support the rupee. The US dollar is expected to soften as the Federal Reserve approaches the end of its easing cycle. Historically, such periods have strengthened emerging-market currencies, including the rupee.
Capital flows may turn more favorable as well. Inclusion of Indian government bonds in global indices could attract foreign investment.
In addition, a recovery in corporate earnings and renewed foreign portfolio investor (FPI) inflows into equities may ease pressure on the rupee.
Reasons Behind 2025 Rupee Weakness
Analysts say the rupee’s sharp fall in 2025 was driven mainly by capital outflows and trade uncertainty, rather than domestic macroeconomic stress.
FPIs withdrew nearly USD 18 billion from Indian equities last year. Low export momentum and higher hedging demand from importers further weighed on the currency.
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Despite a weaker greenback globally, India lagged behind other emerging markets in 2025. Factors such as earnings downgrades, limited exposure to AI-driven global growth trends, and more attractive opportunities elsewhere led investors to pull back from Indian assets.
Outlook for 2026
Looking ahead, SBI Funds Management expects a supportive environment for the rupee. Strong services exports, lower oil prices, and improved global investor sentiment should reduce downside risks.
With these trends, the rupee may see only modest depreciation and stabilise around ₹92 per dollar.
Investors and businesses can expect a calmer currency scenario in 2026 compared to last year, with lower volatility and gradually improving capital inflows.
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