Barclays sees rupee slipping below 96 per dollar by year-end

what happened

CNBC TV18 reports that weekend measures by the Reserve Bank of India (RBI) to support the rupee and manage liquidity produced an approximate 1% short-term gain for the currency. Mitul Kotecha, Barclays’ Head of FX and EM Macro Strategy-Asia, nevertheless said the rupee could weaken beyond 96 per dollar by year-end, with a move through 97 also possible.

The RBI now requires banks to hold 20% of the rupee equivalent in cash reserves for specified forex derivative contracts above $2 million. It also tightened rules on cancelling and rebooking rupee-linked forex contracts, cut the limit for unbacked forex derivative positions from $100 million to $5 million, and instructed three public-sector oil marketing companies to obtain their daily dollars through designated banks instead of the open market.

Kotecha said the steps remove part of the speculative demand but do not resolve the underlying pressures from elevated crude prices, a strained trade deficit and weak foreign portfolio flows. Barclays forecasts Brent at $115 per barrel at year-end. Madan Sabnavis, Chief Economist at Bank of Baroda, said the oil companies’ transactions will be bilateral deals with banks and will not draw on RBI reserves, which stand at around $600 billion plus.

To tighten liquidity, the RBI raised banks’ minimum daily cash-reserve requirement from 90% to 99% for the fortnight ending October 31, while leaving the overall cash reserve ratio at 3%. The move follows approximately ₹1 lakh crore of open-market sales in September and a planned ₹25,000 crore sale for October 13. Sabnavis described the change as temporary and expects the RBI to reverse it quickly after monitoring system surpluses.

why it matters

The measures offer near-term support for the rupee and tighten money-market conditions, while the broader currency outlook remains tied to oil prices, the trade deficit and foreign investment flows. The daily-balance change is intended to move the overnight call rate closer to the repo rate.

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