Fair case for rupee to not just stabilise, but even appreciate: RBI DG

Mumbai: The Reserve Bank of India (RBI) Deputy Governor Poonam Gupta on Wednesday said that there is a fair case for the rupee to not just stabilise but even appreciate from current levels, as the currency's 13.1 per cent depreciation over the past one-and-a-half years appears to be a temporary phenomenon.

"If anything, there seems to be a fair case for the rupee to not just stabilise but perhaps even appreciate from the current levels, as was being anticipated by the market analysts when the capital flow measures were first announced," Gupta said while addressing the 13th SBI Banking & Economics Conclave here.

"Put together, these arguments indicate that one may think of the cumulative depreciation of the INR (or shall one say its overcorrection) in the past year and a half to be a temporary phenomenon," 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, she said.

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 USD 5 billion in 2024-25 and USD 23.6 billion in 2025-26.

The deputy governor, however, 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.

"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 said.

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, she said.

"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 said.

On the capital account, the deputy governor expects a turnaround later in the current financial year.

"Second, capital account too should turn more favourable, plausibly from later this financial year and then remain so," she said.

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.

"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," Gupta said.

The deputy governor said the RBI's ability to manage external pressures remained a key factor supporting the rupee.

"With the RBI remaining committed to ensuring orderly conditions in the foreign exchange market, and having the wherewithal to meet decades' worth of CAD, or the net BOP deficit..." he said.

India's CAD as a percentage of GDP has declined over time and remained well below levels generally considered prudent for emerging market economies, she said.

"Net services exports and remittances remain its great structural strengths. Together, they are large and resilient enough to absorb the merchandise trade deficit and keep the CAD contained at below 1 per cent of GDP," she said.

The recent oil and gold price shocks have pushed CAD temporarily higher, while the capital account surplus has fallen short of CAD in the last two years, resulting in a negative BOP, she said.

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