Rupee Seen Staying Weaker Than 94 per Dollar Through 2026

what happened

The rupee is not expected to strengthen past 94 per dollar in the near term, as Brent crude remaining above $100 a barrel and elevated US Treasury yields could hinder a sustained currency recovery. Moneycontrol said a survey of 14 economists and treasury and currency-strategy chiefs put the rupee near 95-96 per dollar at the end of 2026. Every respondent expects the Reserve Bank of India (RBI) to raise its policy rate by another 25 basis points at the December meeting.

Brent has remained above $100 a barrel for more than two weeks, with Middle East geopolitical tensions disrupting supply chains. On October 12, the rupee jumped 100 paise to 95.76 per dollar from the previous close of 96.73 after the RBI announced weekend measures to support the currency. The move followed a decline of more than 7% in calendar 2026 and roughly 3.5% so far in FY27.

The RBI measures included a dedicated facility for oil marketing companies under which dollars will be sold through designated banks. Companies were also barred from rebooking cancelled foreign-exchange derivative contracts, among other steps. Market participants said the measures were unlikely to produce a structural rise in the rupee and described the rebound as a short-lived knee-jerk response. Lavanya Venkateswaran, senior economist at OCBC Bank, said the steps were a temporary response to immediate depreciation pressure, while the fundamentals still matter because India is a net oil importer. She added that her institution expects the dollar index to appreciate steadily in the near term, which would keep the RBI alert. Anindya Banerjee, head of currency and commodity research at Kotak Neo, said a more durable decline in oil prices and stronger capital inflows would be needed for the rupee to hold above 94 per dollar.

Market participants have dismissed an off-cycle rate increase between the October and December reviews of the Monetary Policy Committee (MPC). Their main expectation is another 25-basis-point increase in December, although some see a 50-basis-point move as possible. Overall, rates could reach 5.75% by the end of FY27, according to respondents. The RBI raised rates by 25 basis points to 5.50% at last week’s October MPC meeting, following the move by the US Federal Reserve. Inflation rose to 4.82% in August as food and fuel prices increased. RBI Governor Sanjay Malhotra has also ruled out near-term rate cuts, leaving a hike or a pause as the expected options. Garima Kapoor, chief economist at Elara Capital, said she did not expect an off-policy move but could not exclude a 50-basis-point increase in December 2026. She expects at least two more Fed hikes over the next two policy meetings, reducing the RBI’s room for manoeuvre and increasing the pressure to defend the rupee.

The market sees a limited chance that the benchmark 10-year US Treasury yield will break above the psychologically important 6% level, suggesting that investors may not be excessively hawkish on rates. Risks remain from higher inflation, heavy bond issuance and tighter fiscal conditions during the year. The 10-year yield moved above 5% in September, its highest level in two decades, and is currently above 5.2%. V Ramachandra Reddy, head of treasury at Karur Vysya Bank, said 6% was possible but not his base case. He sees 5.50-5.60% as readily achievable, with persistent inflation, large Treasury supply and fiscal concerns pushing yields higher, while weaker growth or easing inflation could cap the advance.

why it matters

For currency markets, high oil costs combined with possible further Fed tightening and elevated US Treasury yields remain a headwind for the rupee. RBI support drove the October 12 rebound, but Moneycontrol’s respondents view the effect as temporary and see oil prices and capital flows as more important for a lasting trend.

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