Rupee Outlook: Indian Rupee to Rebound in Next Fiscal's Second Half, Predicts SBI

The Indian Rupee is currently facing significant pressure against the US Dollar, a situation that has drawn considerable attention from economic analysts and policymakers across the nation. India's largest public sector bank, the State Bank of India (SBI), has released a comprehensive report analyzing this ongoing scenario and offering a crucial forecast for the future. According to this report, the Indian Rupee is poised for a strong comeback in the second half of the next financial year, providing a glimmer of hope amidst its current depreciation.

Current State and Drivers of Rupee Depreciation

SBI's report indicates that the pressure on the Indian Rupee. Isn't arbitrary but is driven by a confluence of factors. The rupee has witnessed an approximate 6 percent depreciation in the current year, marking it as one of the most significant declines among major economies. However, the report also clarifies that despite this substantial fall, the. Rupee has not been the most volatile currency compared to its peers. This suggests that specific and potent reasons, rather than general market instability, are behind its decline. Experts anticipate that the factors exerting pressure on the rupee are far from over, and it could soon touch the 92 level against the dollar.

Direct Impact of US Tariffs

One of the primary reasons cited by the SBI report for the rupee's weakness is the imposition of a 50 percent tariff by the United States. The US announced a massive tariff hike on all economies starting April 2, 2025. Since this announcement, the Indian Rupee has weakened by 5, while 7 percent against the dollar. This figure clearly illustrates the direct and significant impact of US tariffs on the Indian currency. While there have been intermittent periods of strengthening due to hopes of a US-India trade deal, the overall trend has been one of depreciation.

The report emphasizes that the 50 percent tariff imposed on India is one. Of the key contributors to the current decline in the rupee's exchange rate. Another significant factor contributing to the rupee's vulnerability is the withdrawal of capital by foreign investors. The report highlights that large capital inflows from investors, coupled with geopolitical uncertainties, are now a thing of the past. Historical trends reveal that during 2007-2014, foreign investor withdrawals averaged $162. 8 billion. In contrast, from 2015 to 2025 (to date), portfolio inflows have been Notably lower, at $87. 7 billion. This comparative analysis demonstrates that higher portfolio investment inflows before 2014 were a major cause of rupee volatility, but the situation has since changed. Geopolitical uncertainties stemming from delays in trade deals have exacerbated this situation, negatively impacting capital flows.

Mounting Pressure from Global Uncertainties

The report, titled 'Rupee on Trust,' also sheds light on the impact of global uncertainties. It notes that while the geopolitical risk index has decreased since April 2025, its current average value for April-October 2025 remains Importantly higher than its ten-year average. This fact underscores the extent to which global uncertainties are pressuring the Indian Rupee, while these uncertainties include rising protectionism and shocks to labor supply, challenges that India has shown remarkable resilience in navigating. Nevertheless, their impact on the currency has been palpable.

RBI's Strategic Interventions and Forex Reserves

The Reserve Bank of India (RBI) has actively intervened to curb the rupee's depreciation and maintain market stability. The domestic currency took merely 13 days to move from 90 to 91 per dollar, indicating the rapid pace of its decline. However, the rupee saw a sharp recovery on Wednesday, closing 55 paise stronger at 90. 38 against the dollar, likely a result of RBI's intervention. India's foreign exchange reserves, which peaked at $703 billion in June 2025, declined to $687. 2 billion in the week ending December 5, 2025. This reduction is primarily attributed to capital outflows from the market and the Reserve Bank's potential intervention in the foreign exchange market to mitigate exchange rate fluctuations. According to fresh data, the Reserve Bank intervened with approximately $18 billion in the foreign exchange market during June-September.

SBI's Optimistic Outlook for Recovery

SBI's analysis concludes that while the rupee is currently undergoing a phase of depreciation, it's likely to emerge from this period. The bank firmly believes that the rupee is poised for a strong rebound in the second half of the next financial year. This prediction offers a ray of hope for investors and policymakers concerned about the stability and strength of the Indian currency. It suggests that despite the current challenges, the underlying strength of the Indian economy and the effective management by the RBI will ultimately enable the rupee to regain its lost ground.