Outlook positive for rupee in the next 2-3 months if oil supplies normalise

The narrative for the Indian rupee and its much-publicised depreciation against the dollar completely changed in the last few weeks, after the Reserve Bank of India announced measures to improve the Balance of Payments (BoP) for the economy. The announcement of a ‘peace deal’ between US and Iran on Monday and the possible end to the West Asia crisis brightens the environment further. 

The rupee reacted positively, closing stronger against the dollar to 94.71 on Monday. It has now appreciated 1.34% in the past one month but is still down 5.2% against the dollar in 2026. 

Economists now say the pressures on India’s capital account deficit will also ease with recent announcements from the RBI to attract dollar-based inflows. This, coupled with improved crude oil supplies – if the deal gets signed this week – and reduced pressure on the import bill, will improve India’s current account situation. 

“The capital account regulations have changes, which will bring in more flows. If oil prices drop, there is a belief that the current account deficit situation will improve. This is positive for the currency, but what needs to be seen is to what extent the RBI will leave the rupee to appreciate,” said Indranil Pan, chief economist at YES Bank. 

The RBI also has a net short dollar position in the currency forward market. “If they want firepower to rebuild their position in the forex resources, then the short book will have to be reduced.  

Economists say the rupee could touch the 93-94 levels in coming weeks. 

Anindya Banerjee, head of commodity and currency research, Kotak Securities said the next 2-3 months could be “quite positive” for the rupee. “If the dollar inflows through the ECBs, FCNR(B) offerings come through and if oil prices slide further and demand for dollars comes down, lowering the pressure on our imports,” he said.

“The oil equation is now turning in India's favour. If the Hormuz agreement holds — and this morning's developments suggest it will — and Brent moves down towards $70 to $73, that materially eases India’s import bill and current account, which only amplifies the inflow story. Alongside this, we expect flows into the equity segment to improve as global risk sentiment recovers,” Banerjee says.

Jateen Trivedi, vice-president research analyst - commodity and currency at LKP Securities, said “technically, the rupee has now moved into an important resistance zone near 94.8–94. Support is seen around 95, and if positive developments around the Strait of Hormuz continue, a sustained move below 94.80 could pave the way for further appreciation towards 94.00 and potentially 93.50 in the coming weeks.”

The focus of the RBI is also expected to shift a bit towards inflation and interest rates, rather than protecting the currency.

The June 5 monetary policy commentary from the RBI signals that it has kept ample room to react whichever way the current situation evolves. Inflation threatens to touch the central bank’s tolerance band in coming months but it may ease if oil supplies improve in coming weeks. Alongside, the RBI might also take time to see how the monsoons advance and the impact of the rains on crop output.

HSBC’s chief India economist Pranjul Bhandari says India is seeing “the energy shock (oil prices and shortages of industrial feed) and the El Nino shock. It’s not a nice place to be in, to have two shocks at the same time,” she told CNBC-TV18.

She adds that global commodity prices could remain elevated, even after the Strait of Hormuz opens – because countries who have been using up their strategic reserves will start restocking again, whether it be for oil, gas, fertilizers, ammonia or petro-chemicals.

Thus while there are still several moving pieces, much depends on the success of the US-Iran deal getting signed and the success of some of the measures RBI has announced to boost dollar inflows into India.