Commerzbank’s Charlie Lay and Moses Lim note that the Indian Rupee has weakened sharply versus the Dollar in 2026 on higher Oil prices, portfolio outflows and a stronger USD. They highlight RBI’s preference for capital-inflow measures over aggressive rate hikes, and expect a 25bp policy increase later this year as inflation rises and USD/INR trades in a broad 94.50–96.00 range.

RBI leans on inflows over rate hikes

"While inflation risks have increased, RBI has opted to support INR through measures to attract foreign capital inflows rather than higher interest rate. We expect RBI to raise rates by 25bp to 5.50% later this year as inflation pressures build."

"On monetary policy, RBI voted unanimously to leave the policy repo rate unchanged at 5.25% in early June and maintained its neutral policy stance. RBI is likely to remain cautious in the near term as it assesses the impact of the Middle East conflict and weather-related risks on growth and inflation. However, the balance of risks has shifted towards tighter policy, and RBI appears closer to a rate hike than a rate cut."

"INR has come under significant pressure from higher oil prices, portfolio outflows, and a stronger USD. INR is down around 6% against the dollar year-to-date. It touched a record low of just below 97.00 in May."

"USD/INR has moderated to the 94.50-96.00 range. While INR remains one of the weaker Asian currencies this year, India's FX reserves remain substantial at around USD689bn, equivalent to roughly 10 months of import cover. Together with ongoing RBI intervention and prospective capital inflows, this should help contain excessive currency weakness in the near term."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)