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The Indian rupee's cumulative depreciation of 13.1 per cent over the past year and a half could prove to be temporary, with the currency potentially stabilising and even appreciating from current levels as India's external position strengthens, Reserve Bank of India Deputy Governor Poonam Gupta has said.
Addressing the 13th SBI Banking & Economics Conclave, Gupta said the rupee depreciated 13.1 per cent on a point-to-point basis between March 31, 2025 and September 16, 2026. She also added, 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, Gupta said. She shared that the RBI remains committed to ensuring orderly conditions in the foreign exchange market. If anything, there seems to be a fair case for the rupee to not just stabilize but perhaps even appreciate from the current levels, Gupta said. Gupta's comments come as India's balance of payments has remained under pressure over the last two financial years. The recent oil and gold price shocks have pushed the current account deficit temporarily higher, while the capital account surplus has fallen short of the CAD. India recorded a negative balance of payments of about USD 5.0 billion in 2024-25 and USD 23.6 billion in 2025-26. However, Gupta said India's external position has several structural strengths that could help improve the balance of payments in the coming years. India has traditionally run a small current account deficit and a larger capital account surplus, resulting in a net positive balance of payments. The CAD as a percentage of GDP has also declined over time and remains below levels generally considered prudent for emerging market economies. Net services exports and remittances remain key strengths, with Gupta noting that they are large and resilient enough to absorb the merchandise trade deficit and keep the CAD below 1 per cent of GDP. Looking ahead, she expects the CAD to shrink further as India's dependence on imported oil declines and merchandise exports strengthen. India's dependence on imported oil is expected to decline through alternative sources of energy and efforts to find domestic oil reserves. This would further reduce oil demand as a share of GDP, while the rest of India's trade basket is responding to new trade opportunities. Gupta also pointed to the positive impact of recent free trade agreements, which she said should materialise over time along with a conducive exchange rate. Capital flows could provide another source of support for the rupee. Gupta expects India's capital account to become more favourable, plausibly from later this financial year. She cited strong domestic macroeconomic fundamentals, high real and nominal GDP growth, a gathering domestic investment cycle, healthy bank and corporate balance sheets, rising foreign direct investment and continuing measures to attract different forms of capital. India is positioned to grow at 7-8 per cent in real terms and 11-12 per cent in nominal terms for years and decades to come, according to Gupta. She also pointed to the potential for greater foreign investment through the eventual inclusion of Indian bonds in more global indices. The AI story is, in effect, an unspent force for us, Gupta said, adding that India could leverage AI's potential while avoiding the associated risks. Gupta said special capital flow measures implemented by the RBI in June this year had resulted in a meaningful balance of payments surplus for the year. This, she said, reflected India's ability to attract large inflows at a small country premium. Overall, Gupta said the combination of India's structural external strengths, improving merchandise exports, declining oil dependence, stronger investment cycle and potential improvement in capital flows could support the rupee going forward. (ANI)
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