The central bank intervened on Thursday as well to cap the rupee’s fall, traders said. Expectations of the rupee depreciating further are also compounding the strain on India’s interest rate swaps market, which has contributed to pushing up overnight index swap rates to levels that price in monetary tightening, even though macro-economic indicators signal no need for it. The rupee’s weakness also stands in contrast with India’s strong economic growth numbers. The economy is expected to grow between 6.8%-7.2% in the fiscal year starting April, a modest slowdown from the 7.4% projection for the ongoing fiscal, the government’s annual economic survey said.
“The rupee’s valuation does not accurately reflect India’s stellar economic fundamentals,” it said, while also noting that the currency’s fall helps offset some impact of the steep U.S. tariffs. A trade deal with the U.S. is key to improving sentiment on Indian markets, a portfolio manager at a hedge fund said.
“It becomes complicated to project long-term growth for India when the country finds itself in a complicated geopolitical spot,” they added, referring to the reticence among foreign investors towards buying Indian assets. Foreign investors have net sold over $4 billion of local stocks in January so far, adding to the record $19 billion outflow in 2025. DBS Bank India expects the rupee to fall to 93-94 this year as capital inflows dwindle.
