The Indian rupee weakened past the psychologically significant level of 90 against the US dollar on Friday, pressured by consistent demand for the greenback and ongoing withdrawals by foreign portfolio investors. The domestic currency finally settled 22 paise lower at 90.20.
Rupee's Volatile Session and RBI's Defensive Stance
During morning trades, the rupee moved within a narrow band and even gained 6 paise to touch 89.92. However, thin liquidity conditions amplified regular demand-supply gaps, ultimately pushing the currency lower. This decline followed a 10-paisa drop on Thursday, January 1, 2026, when it closed at 89.98.
Market experts believe the Reserve Bank of India (RBI) is actively defending the 90 mark. Continued dollar sales by public sector banks have bolstered this view, suggesting the central bank aims to prevent a sustained breach of this crucial threshold. In the absence of major domestic triggers, the currency market lacked clear direction.
Analyst Outlook: From Stability to Competitive Advantage
Economists and fund managers provided a mixed but measured outlook for the rupee's trajectory. Namrata Mittal, CFA, Chief Economist at SBI Mutual Fund, noted that the rupee's recent softness has made the Real Effective Exchange Rate (REER) more competitive, even with low inflation. She anticipates an improvement in India's balance of payments in the 2026-27 financial year.
Mittal highlighted that while non-oil, non-gold imports have risen due to economic recovery and competition from Chinese exports, strong double-digit growth in net services exports should keep the current account deficit below 1% of GDP in FY26 and FY27. She expects capital inflows to improve next fiscal year, supported by potential inclusion in another global bond index and a possible resumption of FPI equity flows.
SBI MF's chief economist forecasts the rupee to weaken only about 2% in FY27 (to around 92 per USD), adding that a trade deal could even lead to modest appreciation. "Overall, currency fundamentals remain stable, aided by contained CAD, resilient services exports, and hope of improving capital flows," Mittal opined.
Silver Lining for Exporters and Technical View
Prateek Agrawal, MD & CEO of Motilal Oswal AMC, pointed out a potential upside for corporate India. A weaker rupee could support the margins of export-oriented companies as their Indian costs become lower in dollar terms. He also suggested that depreciation might increase the attractiveness of domestic businesses, as imported goods become more expensive, potentially leading to more balanced trade.
From a technical perspective, Ponmudi R, CEO of Enrich Money, observed that USD/INR is trading steadily around 89.90–90.00. The pair continues to form higher highs and higher lows, with RBI's actions helping to curb sharp volatility. After testing levels above 91 in late 2025, the pair has stabilised amid a softer US dollar.
For 2026, Ponmudi noted mixed expectations: consensus forecasts suggest a broad 90–91 range, though sustained outflows could push the pair toward 90.80–93. Conversely, continued RBI support and easing external pressures could confine USD/INR to a 89–90 range. Immediate support is seen at 89.50–89.00, with resistance at 90.50–91.00. "Overall, the structure remains neutral to mildly bullish for USD," he concluded.
