ANZ says RBI unlikely to let rupee hit 100 soon; forecasts 97.5 by year-end

The Reserve Bank of India is unlikely to allow the rupee to weaken to the 100-per-dollar level in the near future, even as pressure on the domestic currency continues to mount amid elevated crude oil prices and persistent global uncertainty, according to Dhiraj Nim, Economist and FX Strategist at ANZ Research.

Speaking to CNBC-TV18, Nim said ANZ expects the rupee to end the year at 97.5 against the US dollar, driven by widening current account pressures, sustained dollar demand and weak capital flows.

“The chatter is, of course, alive in terms of what next could be done,” Nim said, referring to possible measures the RBI could deploy to stabilise the currency. He added that “every option for the RBI is on the table”.

The Indian rupee fell to an all-time low of 95.73 against the US dollar on Tuesday (May 12), pressured by elevated crude oil prices and persistent uncertainty surrounding the fragile ceasefire between the United States and Iran.

At the interbank foreign exchange market, the rupee opened at 95.57 per dollar and slipped to a lifetime low of 95.73 during the session, down from Monday’s close of 95.28.

Nim said the latest weakness in the rupee was not being driven by any new trigger but rather by an intensification of existing concerns around oil prices, capital outflows and hedging demand.

“No, I think it’s more of the same old story,” he said. “Oil prices are elevated, and as days are passing by, it appears very clear that the resolution to the Middle East conflict or the West Asia conflict would not be quick and easy.”

He said the market was beginning to reflect concerns around India’s current account deficit, persistent foreign institutional investor outflows and growing expectations of further rupee weakness.

According to Nim, exporters are staying away from the market while corporates continue to increase hedging activity amid fears that the rupee could weaken further.

Despite growing market discussion around the rupee potentially touching 100 against the dollar, Nim said such a move would require very different macroeconomic conditions and would likely prompt stronger policy intervention from the RBI before that level is reached.

“We do not think that the RBI will let the rupee go to that 100 level in the near future,” he said.

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He added that a rupee at 100 would complicate inflation dynamics and could force a broader shift in macroeconomic policy settings.

Nim said market participants were discussing a range of possible policy responses, including FCNR(B) deposit schemes, quasi-fiscal bond issuance and even interest rate hikes to defend the currency. However, he noted that ANZ was not building any such measures into its baseline forecasts until formally announced.