The Indian rupee could weaken into triple digits against the dollar over the next 12 to 18 months, according to UBS Investment Bank chief strategist Bhanu Baweja. Speaking in an exclusive interview with Moneycontrol, Baweja stated that 'I think we should expect further depreciation of the rupee. I don't think anybody should be surprised if the rupee trades in triple digits in the next year or 18 months'. The currency faces pressure from both the global interest-rate cycle and its own underlying fundamentals, with higher US yields reducing the carry available from Indian assets. Axis Bank has reinforced this outlook, using their Fundamental Equilibrium Exchange Rate (FEER) model to estimate that the rupee may need further weakening to align with shifting trade fundamentals and relatively weaker productivity gains from AI.
Higher US yields would reduce the carry available from Indian assets, making the rupee less attractive to foreign investors and leaving the currency more exposed to depreciation. As reported by Moneycontrol, Baweja explained that 'If yields in the U.S. are going higher, then the carry that the Indian rupee has to offer is lesser, or the protection that the Indian rupee has to offer is lesser'. The Indian rupee can come under pressure when the carry advantage diminishes, particularly as global interest rates continue to rise. Axis Bank estimates that a sustained terms-of-trade shock and a loss of 5% in relative AI productivity could theoretically translate to another 10% weakening of the REER (real effective exchange rate) in a year's time. According to Economic Times, the trade-weighted real effective exchange rate (REER) index fell to 91.75, a level last seen during the 2013 taper tantrum, with the REER weakening to 91.8 in July 2026 from a tad lower of 102 in April 2025.
Despite the Reserve Bank of India's success in keeping currency movements relatively contained, the rupee remains fundamentally uncompetitive. According to Baweja's analysis reported by Moneycontrol, 'I think the RBI, credit to them, has really managed it extremely well' but noted that 'a stable currency does not necessarily mean a competitive one'. India's export growth remains weak compared with Northeast Asian economies, creating an underlying case for further depreciation as the country's export volumes are not very strong. Axis Bank notes that relatively weaker productivity gains from AI compared to other economies could require further currency adjustment. As per Economic Times, part of the problem might be misalignment of neutral rates required for the domestic growth and inflation balance with global trends.
The rupee has declined 6% year-to-date and is among Asia's worst performers this year, with the currency trading at 95.90 per dollar. Axis Bank estimates that the Reserve Bank of India has sold about $250 billion to support the rupee over the past few years, with India's basic balance in a $180 billion deficit since mid-2023 despite the current account deficit averaging only 0.6% of GDP in the same timeframe. The bank notes that for decades, India maintained a sustainable current account deficit of 2%, but that level may have shrunk to zero in recent years, implying that the rupee can now only endure smaller external imbalances without weakening. According to Economic Times, the RBI is estimated to have sold $250 billion since mid-2023 to defend the local currency, nearly double of the inflows seen through the dedicated dollar-inflows programme run between June and August.
According to Axis Bank's analysis, the rupee may depreciate to 97 by year-end and to 100 by June 2027, weaker than levels implied by forward markets. The median forecast of economists polled by Reuters pegs the rupee in the 95.25-96.80 band over the next one year. The currency outlook becomes more challenging if crude prices remain elevated, with a scenario where oil reaches $130-$140 per barrel putting additional pressure on the rupee. Axis Bank expects the RBI may allow some depreciation if necessary, using reserves primarily to prevent excessive volatility rather than to preserve a particular exchange-rate level, as long as a complete currency collapse is avoided.
