Could India Cash In on the Weak Rupee?

Rupee Performance and Influencing Factors - The Indian Rupee (INR) experienced weakness, becoming one of the worst-performing currencies this year, despite interventions [5] - Capital outflows, weak capital inflows (the weakest since the global financial crisis), and the absence of an India-U S trade deal are key factors driving Rupee weakness [4][5][6] - The Reserve Bank of India (RBI) intervened by buying bonds with 500 billion Rupees to calm the markets, which provided short-term relief [2] - Increased tolerance by the RBI for a weaker Rupee level is aimed at attracting capital inflows [7] Rupee Forecast and RBI Strategy - Forecasts suggest the Rupee could weaken to between 93 and 95 levels in the first part of 2026 [4][5] - The RBI is expected to shift its strategy to smoothing the Rupee's movements rather than defending a specific level in 2026 [9] - The RBI will likely use opportunities to rebuild its foreign exchange reserves [8] Economic Impact and Policy Implications - A weakening Rupee can act as a shock absorber, allowing monetary and fiscal policy to focus on growth and jobs [13][14] - While a weaker Rupee provides incremental support for exporters, Indian exporters are primarily price takers [15][16] - Low global commodity prices should limit the negative impact of a weaker Rupee on imports [17][18] - The government should focus on domestic levers of growth, such as consumption, and consider further tax cuts [20] - The government should focus on structural issues like ease of doing business and tax consistency to attract investments [23]