Pressure on rupee likely to ease in first half of FY26

Although some experts expect the rupee to be in the 87.50/$1 to 85.75/$1 range by December 2025, most economists are hesitant to put out a level due to tariff-related uncertainties.

The Donald Trump administration is due to announce new tariff measures from April 2.

The rupee weakened 2.5% in FY25, closing at 85.47/$1 on March 28, with the local unit touching a record low of 87.95/$1 on February 10.

Consequently, the rupee's real effective exchange rate (REER) dropped to 102 in February, from a peak of 108 in December, central bank data showed. The dollar index, too, was at 104.4 in March, from a peak of 109.8 in February. The rupee traded in the range of 83.06 to 87.58 in FY25.

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«The dollar index slid in the past month because growth concerns are weighing over inflation concerns in the US. Plus, there is a drop in domestic inflation, which has eased a lot of competitiveness concerns as far as REER is concerned,» said Dhiraj Nim, economist and FX strategist at ANZ Bank. «Hence, the outlook for the rupee to weaken significantly has become less biting.»

Nim, however, would await tariff announcements to assess their impact on the currency. «Any adverse or aggressive tariff announcement will limit the room for further rupee gains,» DBS Bank said in a note.

Economists also expect depreciation pressure to gradually resume after the June quarter, which would again bring two-way swings into the rupees exchange rate.

«Two-way volatility is important to squeeze out any speculative bets and we also think