RBI Deputy Governor Poonam Gupta Sees Case for Rupee Appreciation After 13% Drop

The Reserve Bank of India (RBI) has signaled confidence in the underlying strength of the domestic currency, with Deputy Governor Poonam Gupta remarking that there is a "fair case" for the Indian rupee not merely to stabilise, but potentially to appreciate from current exchange levels. Speaking at the 13th SBI Banking & Economics Conclave in Mumbai, Gupta described the currency’s cumulative 13.1% depreciation between March 31, 2025, and September 16, 2026, as a temporary phenomenon and a potential market overcorrection.

Gupta highlighted that the recent depreciation does not reflect India's robust domestic economic fundamentals, noting that the economy remains firmly positioned to expand at 7% to 8% in real terms and 11% to 12% in nominal terms.

Balance of Payments and Deficit Trajectory

The deputy governor’s assessment comes against the backdrop of pressure on India's external accounts over the past two fiscal years. India registered a negative balance of payments (BoP) of roughly $5 billion in FY25 and $23.6 billion in FY26, driven largely by elevated crude oil and gold import bills that temporarily widened the Current Account Deficit (CAD).

However, Gupta pointed out that India's structural buffers remain fully intact:

• Resilient Inflows: Net services exports and robust remittance inflows continue to provide an extensive cushion, keeping CAD generally below 1% of GDP.
• Shrinking Deficit: The deficit is projected to shrink further as global energy market pressures ease following geopolitical stabilisations, coupled with India's long-term energy transition reducing oil import intensity.
• Capital Account Recovery: Inflows are anticipated to turn significantly more favorable in the latter half of the current financial year, spurred by foreign direct investment and regulatory measures aimed at attracting external capital.

Forex Intervention and Market Stability

The Indian rupee, which touched an all-time low of 96.96 per US dollar in late May before recovering toward the 95.75 level, has faced global headwinds including strong dollar moves and elevated international bond yields.

Reassuring financial markets, Gupta emphasised that the central bank maintains adequate reserves and the administrative wherewithal to manage external pressures and guarantee orderly market conditions.

Key Takeaways for Indian Investors:

• Corporate Borrowers: Indian corporates with foreign currency exposures or unhedged overseas borrowings could see reduced currency risk if the rupee enters an appreciation cycle.
• Import-Heavy Sectors: Importers, particularly in oil refining, consumer electronics, and metals, stand to gain from softer landed costs if the rupee strengthens against the greenback.
• Foreign Portfolio Flows: Reassurance from the central bank on exchange-rate stability is likely to boost sentiment among overseas institutional investors concerned about currency depreciation eroding their equity returns.

Tags: Reserve Bank of India Indian Rupee Poonam Gupta Forex Markets State Bank of India