Calling rupee’s depreciation over the past one-and-a-half years a temporary phenomenon, the Reserve Bank of India (RBI) Deputy Governor Poonam Gupta has said that there is a fair case for the rupee to not just stabilise but even appreciate from current levels. She said the rupee has cumulatively depreciated by 13.1 per cent on a point-to-point basis from March 31, 2025 to September 16, 2026.
The comments come against the backdrop of India's balance of payments turning negative in the last two financial years, with the country recording a negative BOP of about $5 billion in 2024-25 and $23.6 billion in 2025-26. However, the deputy governor said the current account deficit should shrink further in the coming years, helped by India's traditional strengths in services exports and remittances and emerging strengths such as merchandise exports.
She said “First, the CAD (current account deficit) should shrink further in coming years, with the traditional strengths persisting and the new ones emerging, including the growing success in merchandise exports”. She added India's dependence on imported oil is also set to decline through alternative sources of energy and efforts to find its own oil reserves, which would further bolster the trend reduction in demand for oil as a percentage of GDP. Meanwhile, the rest of the trade basket is responding well to the new trade opportunities that are being leveraged, a strength that will continue with the positive impact of recent FTAs materialising, and a conducive exchange rate.
She further said “Second, capital account too should turn more favourable, plausibly from later this financial year and then remain so”. She cited stretched valuations elsewhere, saturation of AI-led investment, strong domestic macroeconomic fundamentals, high real and nominal GDP growth, a domestic investment cycle, healthy bank and corporate balance sheets, measures to attract capital and a trend increase in FDI as factors that could support capital inflows. She also said that eventual inclusion of Indian bonds in more global indices could aid capital flows. She added “For now, we have leveraged our special capital flow measures implemented in June this year, resulting in a meaningful BOP surplus for the year. This reflects India's unique ability to attract large inflows at a very small country premium”.
