Rupee Seen 94/USD By Fiscal End On Lower Crude, Foreign Inflows: Kotak Securities' Anindya Banerjee

The Indian rupee is currently trading near 95.40 per US dollar and it may appreciate towards 94 provided crude oil averages in low-to-mid $80/barrel, and foreign inflows and central bank reserves are steady, according to Anindya Banerjee, Head of Commodity and Currency Research, Kotak Securities.

As a rule of thumb, every $10 move in Brent adds roughly $13–15 billion to India's annual import bill, or about 0.3–0.4%  of GDP on the current account. So Brent holding below $100 keeps the external account well within manageable limits.

When crude oil prices spiked to $120–126 per barrel earlier this year, effective energy diplomacy — diversified sourcing and longstanding supplier relationships contained inflation and protected households.

"The factors we would monitor are a durable move in Brent above $110 on renewed escalation in West Asia, further tightening in US rates, variability in portfolio flows, and the seasonal transition once the special deposit window closes in September. Each looks manageable given India's buffers; sustained sub-USD 100 crude keeps the currency well anchored," Banerjee said.

According to Kotak Securities, the base case for USD/INR is a gradual appreciation of the rupee towards 94 by fiscal year-end — consistent with Brent averaging in the mid- $80 or lower, as OPEC+ restores supply, the special deposit pipeline continuing to deliver, and foreign portfolio flows staying constructive.

However, renewed escalation in West Asia could lift crude prices and tighten US rates further, in that event, "we would expect the rupee to hold a 96–97 range, staying within territory already traded this year," Banerjee said.

The USD/INR pair is currently hovering around 95.40 against the US dollar.

According to Banerjee, FCNR(B) inflows have helped to offset trade deficit pressures and have become one of the most significant sources of external support this year.

Total inflows under the swap facility reached $40.82 billion by July 31, nearly doubling within a fortnight, with FCNR(B) deposits contributing $36.7 billion, or about 90% .

"Set against under $1 billion of FCNR(B) flows in the whole of last financial year, and against the scale of the monthly trade gap, this is a substantial cushion," Banerjee said.

Moreover, India's forex reserves are rising steadily and moving back towards the record of $728 billion touched in February, among the largest buffers in the world, covering roughly eleven months of imports.

The Reserve Bank of India, however, does not target levels; it ensures orderly conditions. Earlier this month, Governor Sanjay Malhotra had said that it would be RBI's endeavour that the trajectory for the rupee remains "orderly".

"In practice, we would expect volatility to be firmly and capably managed as the pair approaches the previous high near 97," Banerjee said, adding that with reserves of about $682 billion, a substantial dollar pipeline from the deposit window and the flexibility of its forward-market operations, the central bank is exceptionally well placed to maintain currency stability.

"The rupee's trajectory this fiscal remains primarily an oil story — and policy has already demonstrated, through a far more difficult phase, that it can manage that story well," Banerjee said.

India's forex reserves jumped by $10.512 billion to $692.866 billion during the week ended July 31, the RBI said on Friday.

Reserves had expanded to an all-time high of $728.494 billion during the week ended February 27 this year before the onset of the West Asia conflict, which led to several weeks of drop as the rupee came under pressure and the RBI had to intervene in the forex market through dollar sales.