Goldman Sachs Group Inc. has revised its dollar/rupee forecasts downward, now predicting the currency will stabilize at 96 per dollar in three months, down from its previous forecast of 97. The Wall Street bank maintained its six-month forecast at 96 and sees the currency at 97 in 12 months, compared to its earlier projection of 96. According to Goldman analysts including Kamakshya Trivedi, the steps taken by the Reserve Bank of India and government 'should limit the depreciation pressure on the rupee' and envisage a 'plateau in the dollar/rupee cross rate'. Goldman expects the measures may draw as much as $50 billion in inflows, with the rupee falling as much as 0.4% to 95.36 Monday after gaining the most in over two months Friday. 'To be clear, we do not expect substantial spot appreciation either', Trivedi noted, adding that the rupee depreciation is not out of line with other key energy importing currencies in the region.
Economic Advisory Council to the Prime Minister member Shamika Ravi has dismissed concerns about the rupee breaching the 100-per-dollar threshold, stating that '100 is just a number' during an ANI podcast interview. According to reports from ANI, Ravi emphasized that the value of the rupee should not become an end in itself, arguing that attempts to artificially maintain a particular exchange rate could trigger inflationary pressures and create broader economic distortions. Speaking in the podcast, Ravi said 'So what? 100 is just a number', stressing that the rupee's value should not be the primary focus of economic policy.
The government has announced comprehensive measures to attract foreign funds and support the rupee, with foreign portfolio investors (FPIs) exempted from income tax on interest income and capital gains from government securities effective from April 1 this year. As reported by Business Standard, the removal of withholding tax on interest income is particularly significant as it reduces the post-tax return for overseas investors, potentially bringing more foreign money into the sovereign bond market. Additionally, the RBI and government announced a package to pull in foreign currency, expanding the fully accessible route (FAR) to include new issuances of 15-year, 30-year and 40-year government securities, while removing short-term investment concentration limits under the general route. Friday's measures include tax exemption on foreign investments in government securities, opening up more debt categories for full foreign investor access, and exemptions for banks raising foreign-currency bonds and deposits. The steps may draw as much as $50 billion in inflows, according to some analysts.
Among the most significant measures announced on Friday, the Indian government removed a 12.5 per cent capital gains tax for foreign investors in Indian bonds and scrapped a 20 per cent tax on interest earnings. The exemptions take effect from April 1, 2026, with the Bank for International Settlements also exempted from these taxes. A wider pool of government bonds will have no foreign investment limits, the Reserve Bank of India announced. This represents a substantial improvement in the attractiveness of Indian government securities to foreign investors, potentially drawing significant capital into the sovereign bond market. The Income Tax Amendment Ordinance, 2026 has granted full tax exemption on interest income and capital gains earned from government securities by foreign investors, with the benefit also extended to the Bank for International Settlements.
The Reserve Bank of India has announced higher investment limits for non-resident individuals (NRIs), overseas citizens of India (OCI) and all individual persons residents outside India (PROIs). Under this scheme, the investment limit for an individual PROI will be increased from 5% to 10% in any company, with an overall investment limit for all individual PROIs to 24%, from the current 10%. The new rules will also simplify onboarding and reduce compliance requirements. This provision allows them to invest larger amounts in Indian financial markets without requiring registration with the Securities and Exchange Board of India (Sebi), aimed at facilitating greater overseas participation in Indian capital markets.
The RBI has decided to provide a concessional foreign exchange swap facility for Public Sector Undertakings (PSUs) to reduce hedging costs on foreign currency loans. The measure is aimed at encouraging PSUs to raise funds through External Commercial Borrowings (ECBs), thereby supporting foreign currency inflows into the country. The central bank will soon issue a detailed circular on how the mechanism will be operational. 'The PSU ECB swap facility will offer further incentives to PSUs to borrow in US dollars (ECB) and swap into rupee, similar to the 2013 RBI FX swap window,' Business Standard reported, citing a report by Barclays. This facility will provide PSUs with access to cheaper foreign currency funding while maintaining rupee stability. The measure is designed to help state-run firms and local banks raise dollars overseas, bring them home, and get a big discount on their hedging cost until September 30.
Goldman analysts noted that 'To be clear, we do not expect substantial spot appreciation either' and that the rupee depreciation is not out of line with other key energy importing currencies in the region. The currency's carry has increased since the outbreak of the Iran conflict and is higher than other Asian high-yielders, including the Indonesian rupiah and Philippine peso, according to Goldman. The Wall Street bank stated that 'any renewed capital inflows should and will be used to rebuild the reserve buffer and unwind the short forward book'. However, as noted by Business Standard, 'the euphoria around short-term inflows won't fix the core weakness in India's external accounts'. The analysis highlights that an economy growing 7.8% in the March quarter shouldn't struggle with just $3 billion in net annual foreign direct investment, nor fight to bring back financial investors who have taken out $35 billion from the stock market over the past 12 months. The comments hold significance as the rupee fell to a new low of 96.9650 per dollar last month amid a surge in global crude prices and record overseas outflows from equities.
