Fair case for rupee to appreciate from current levels: RBI’s Poonam Gupta

The rupee’s 13 per cent depreciation over the past one and a half years could be temporary, and there is a fair case for the Indian currency not only to stabilise but also to appreciate from current levels, Reserve Bank of India (RBI) Deputy Governor Poonam Gupta said.

She expects the current account deficit to shrink further, helped by lower dependence on oil imports and prices stabilising once the West Asia conflict is resolved. She also expects the capital account to turn more favourable, possibly from later this financial year.

“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, the current market dynamics do not appear especially well-founded,” Gupta said at the SBI Banking and Economics Conclave 2026.

On Wednesday, the rupee ended a five-day winning streak to close at 95.75 per dollar, down 0.16 per cent from the previous close. The Indian currency has depreciated 0.6 per cent in September.

“If anything, there seems to be a fair case for the rupee to not just stabilize but perhaps even appreciate from the current levels, as was being anticipated by the market analysts when the capital flow measures were first announced,” she said.

The Indian currency came under pressure after the West Asia war began in late February, falling over 4 per cent against the dollar in March. Following several measures in the next few months, its depreciation has been contained to less than 1 per cent between April and now, despite the rise in oil prices.

She said the recent oil and gold price shocks had temporarily pushed the current account deficit (CAD) higher.

Observing that India has traditionally run a small CAD and a larger capital account surplus, resulting in a positive balance of payments (BoP), she said that in the past two years, the capital account surplus had fallen short of the CAD, resulting in a negative BoP of about $5 billion in 2024-25 and $23.6 billion in 2025-26.

Commenting on the direction of the BoP and the exchange rate, especially for an economy positioned to grow at 7-8 per cent in real terms and 11-12 per cent in nominal terms for years to come, she said, “One plausible assessment is as follows. First, the CAD should shrink further in coming years, with the traditional strengths persisting and the new ones emerging, including the growing success in merchandise exports.”

This is because India’s dependence on imported oil is set to decline through alternative sources of energy and the search for its own oil reserves, both of which will further reduce demand for oil as a percentage of GDP. Oil prices would also stabilise as soon as the conflict in West Asia is resolved. “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 materializing, and a conducive exchange rate.”

Second, she said, the capital account should also turn more favourable, possibly from later this financial year, and remain so.

She cited several factors, including stretched valuations elsewhere, AI enthusiasm reaching saturation, strong domestic macroeconomic fundamentals and high real and nominal GDP growth helping improve earnings guidance. The domestic investment cycle is also gathering pace, alongside healthy balance sheets of banks and companies.

She said India’s inclusion in more global bond indices was inevitable and would attract capital flows.

“…continuing measures to attract variety of capital into the country; trend increase in FDI; and, in due course, the inevitable inclusion of Indian bonds in more global indices. The AI story is, in effect, an “unspent force” for us. Just as India has leveraged the potential of digital innovation thus far, it will leverage the potential of AI equally well going forward, while avoiding the risks,” she said.

Further, Gupta said she saw no reason India would not keep growing at 7 per cent or more, pointing to the breadth of the economy. Unlike countries that depend on one or two sectors, India has several doing well at once, serving both domestic and external demand, she said. The same diversity is evident across states, with some specialising in high-tech manufacturing and others still catching up, and every state investing in skills, infrastructure and ease of doing business.

She said growth would already be at 8 per cent if external conditions were more conducive. A simple regression of India’s growth on global growth shows a positive relationship, she said, but India is currently not getting an “extra kick” from the global economy. That lift would come if conditions improve, she added, noting that artificial intelligence remains an untapped growth driver and that India has not reached saturation, either across regions or sectors