The brokerage highlighted that “Indian Rupee’s slide past the 88-mark has largely reflected tariff-driven sentiment rather than a deterioration in India’s underlying fundamentals, suggesting limited room for further depreciation.”
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YES Securities pointed out that India’s macroeconomic buffers remain strong. “India’s foreign exchange reserves are at a record $694 billion, the current account deficit is projected to stay below 1% of GDP, and services exports continue to deliver robust inflows that offset merchandise trade pressures,” the report said.
These factors, along with the Reserve Bank of India’s intervention in the spot and NDF markets, are expected to support the currency in the near term.
The report also noted that the real effective exchange rate (REER) signals that the rupee may already be near fair value. “The real effective exchange rate (REER) at 100 (July level) is well below its long-term average, suggesting the rupee is not structurally overvalued and may even be on the brink of undervaluation after August’s steeper fall in INR against the basket of currencies.”YES Securities added that the probability of USD/INR sustaining above 88 appears low. Instead, stabilisation in the 86.5–88 band looks more plausible, barring a fresh escalation in tariffs or geopolitical risks.On the external front, YES Securities flagged that recent US tariffs on Indian exports — doubling from 25% to 50% from August 27, 2025 — had been a key driver of near-term weakness, cutting forex inflows and creating sustained dollar demand.
However, it added that the secondary tariffs will eventually be rolled back to more sustainable/practical levels as US-India trade negotiations progress.
Supporting the rupee further is the expectation of a dovish US Federal Reserve.
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“Markets now price in five cuts over the next 12 months — a sharp shift from earlier bets on just one or two,” the report said, noting that Fed easing combined with India’s higher real yields should attract foreign portfolio inflows.
YES Securities also highlighted India’s macroeconomic resilience and benign inflation trajectory as additional positives. “India’s inflation remains subdued, with the RBI projecting CPI to average 3.1% in FY26. We expect FY26 CPI to undershoot the RBI’s projection by about 20 bps and forecast FY27 average CPI at around 4.2%,” the report said.
The brokerage expects the RBI to cut rates by a calibrated 25 bps in FY26, with another 25 bps possible if disinflation continues.
In a significant confidence boost, the report also cited S&P Global Ratings’ upgrade of India’s long-term sovereign credit rating to ‘BBB’ from ‘BBB-’, its first upgrade in 18 years, which reflects strong growth, credible monetary policy, and fiscal consolidation efforts.
Overall, YES Securities concluded that macro stability, strong FX reserves, narrowing CAD, and potential foreign inflows amid Fed easing should limit further downside for the rupee, with the currency likely to stabilise within the 86.5–88 range in the absence of fresh shocks.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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