Why the rupee is under pressure
Goenka pointed to several headwinds weighing on the currency:
- Lack of dollar sales in the interbank market
- Exporters remain on the sidelines due to weak order insights and margin pressure
- A gradual increase in the current account deficit (CAD)
- Capital account inflows fail to fully fund the CAD
Despite foreign portfolio outflows of nearly $19 billion last year and about $2.7 billion so far this year, the rupee has remained vulnerable. Recent market volatility, including selling triggered by Adani Group news, also led to a sharp intraday decline of 30 to 40 paise, he noted.
Medium-term prospects more constructive
While acknowledging the short-term pain, Goenka said the medium-term outlook is more positive.
“From FY27 onwards, we expect the rupee to improve significantly, with the average likely to be below 90 per dollar,” he said, adding that on a relative valuation basis, the rupee appears undervalued by about 5%.
Including term premiums, one-year term levels are closer to 94.5-95, suggesting there is room for appreciation once conditions normalize. Progress on a trade deal could trigger a sharp recovery in the currency, he said.
RBI’s position: managed flexibility
On whether the Reserve Bank of India should aggressively defend the rupee, Goenka said the central bank appears to be striking a balance between growth, liquidity and currency stability. Invoking the ‘impossible trinity’, he said the RBI has chosen to preserve domestic liquidity and support growth even if it means weakening the rupee moderately. Selling dollars reduces the liquidity of the system, and the RBI has already sold about $45 billion since October.“The RBI will intervene during periods of tight liquidity, but is also prepared to allow the currency to move if pressures mount,” he said, noting that other Asian currencies such as the Indonesian rupiah, the Philippine peso and the Korean won have also weakened recently.
Forex reserves and intervention strategy
Goenka said the RBI is likely to be cautious in deploying reserves, especially after diversifying some of its holdings into gold.
“With the global environment in turmoil, the central bank will use reserves selectively – intervening when liquidity is scarce and the impact is maximum,” he said.
Silver lining for exporters
A weaker rupee provides some relief for exporters, even as demand and margins remain under pressure.
Export-oriented companies have already absorbed margin pressure to protect volumes and credit lines, Goenka said. The depreciation of the currency, combined with the disadvantages of tariffs, provides partial cushioning, especially as domestic inflation remains under control.
“A weaker rupee supports exporters and improves nominal GDP growth, something policymakers are now prioritizing,” he said.
Key takeaway
Goenka advised investors and companies to focus on the medium-term trajectory rather than short-term volatility.
“The short term may remain challenging, but as external pressures subside and capital flows stabilize, the rupee should be better positioned going forward,” he said.
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