The Indian rupee staged a tentative recovery on Thursday, opening 6 paise higher at 90.32 against the US dollar in early trade. This uptick extends a sharp rebound witnessed a day earlier, which snapped a five-day losing streak that had pushed the currency to historic lows.
RBI Action Triggers Sharp Reversal
The rupee's dramatic turnaround on Wednesday, where it climbed 55 paise from its record low, was driven by aggressive intervention from the Reserve Bank of India (RBI). The central bank stepped in to sell US dollars following a steep and sustained slide. This action propelled the rupee to an intraday high of 89.75 on the interbank system, recovering from levels perilously close to 91.00.
According to a banker, unlike previous interventions conducted before market hours, Wednesday's dollar sales began shortly after onshore trading commenced. "The Indian rupee appreciated after a five-day losing streak, bolstered by suspected aggressive intervention from the central bank," stated Dilip Parmar, Research Analyst at HDFC Securities.
This strategy mirrors the RBI's moves in October and November, when it repeatedly sold dollars in both spot and non-deliverable forward (NDF) markets to counter one-way depreciation, causing sharp intraday reversals.
Global Pressures Behind Rupee's 2025 Weakness
Market analysts emphasize that the rupee's decline this year is more a result of global headwinds than domestic economic conditions. The currency has depreciated nearly 6% against the dollar in 2025, ranking it among the worst-performing currencies worldwide.
Key factors cited for this weakness include:
- A widening trade deficit.
- The impact of 50% tariffs imposed by the United States.
- Persistent foreign portfolio investment outflows.
Analysts noted, "No currency has been hit harder by US tariffs than India's rupee," adding that uncertainty over a US-India trade deal has kept investors cautious.
SBI Projects a Strong Recovery by Late FY27
In its latest analysis, the State Bank of India (SBI) has projected a strong recovery for the rupee in the latter part of the next financial year, between October 2026 and March 2027. The bank's assessment, based on historical currency behaviour and internal analysis, suggests the current weakening trend is not permanent.
The SBI report classifies the rupee's long-term behaviour into three distinct phases against the US dollar:
- Jan 2008 - May 2014: A phase of sharp rupee weakening (down 16.3% on average) attributed to weak domestic fundamentals.
- May 2014 - March 2021: A period of alignment where rupee depreciation (7.9%) broadly matched dollar appreciation (5.1%).
- September 2024 - Present: A new regime where both currencies have weakened simultaneously, driven by elevated geopolitical uncertainty.
The report highlights a fundamental shift in the global environment. The era of easy capital inflows that buoyed the rupee before 2014 has ended. Data shows net portfolio inflows averaged $162.8 billion between CY07 and CY14, but fell to $87.7 billion between CY15 and CY25. Geopolitical risks and trade delays now exert greater influence.
Based on this framework, SBI believes the rupee, while still in a depreciation phase, is expected to exit it over time. As global uncertainties subside, the currency is projected to rebound strongly in the second half of FY27.
