MUMBAI: As the rupee plumbs new lows almost every day, the economists at the nation’s largest lender SBI has said the pain for the unit will last at least six more months and that the currency is likely to claw back to the 87-levels in the second half of next year.
SBI Research chief economist Soumya Kanti Ghosh also said the ongoing fall of the rupee is acting like a shock absorber for the tariff hit exporters. He said the rupee, which has lost more than 6% year-to-date and is the worst among Asian peers and also the third worst globally after the Turkish lira that has lost 52% and the Argentinian peso that has plunged 50%, is passing through the phase III of depreciation, which is a period marked by simultaneous weakness in both the rupee and the dollar.
Unlike earlier cycles, this phase is driven less by domestic macroeconomic stress and more by heightened global uncertainty, particularly geopolitical tensions and trade disruptions, Ghosh said. Arguing that the rupee fall has helped the 50% tariff hit exporters as it acted like a shock absorber, he said the November trade data is proof of this wherein the overall goods exports saw an excellent turnaround in November clipping at a whopping 19.4% growth on-year and making it the best numbers in three and half years.
“The steep 50% tariffs imposed on our goods is one of the major factors behind the current phase of rupee depreciation,” Ghosh said. “The rupee depreciation has made our exports more competitive. This was reflected in the November trade data. Our exports jumped 19.38% year-on-year to $38.13 billion in November, while shipments to the US soared 22.6% to $6.98 billion, cutting the trade deficit to a five-month low of $24.53 billion in November, sharply down from a historic high of $41 billion in the previous months, when exports shrunk and imports soared,” the report said.
But he was quick to say that this cheaper rupee-driven export growth is unlikely to be sustained. “Although the direction and magnitude of the responses suggest that trade volumes are elastic with respect to the exchange rate, the effects on exports and imports are broadly comparable in size and opposite in sign, resulting in a substantial degree of offsetting,” he warned.
“Despite measurable short-run sensitivity of both exports and imports to rupee depreciation, the dynamic effects largely cancel out, rendering the trade balance relatively insensitive to exchange rate shocks in the current period,” he added. He also sees the rupee remaining in the depreciating regime for about six more months, after which it could appreciate by around 6.5%, potentially moving back towards Rs 87 per dollar in 2026. But he did not offer a level for the rupee before the recovery.
The rupee breached the 91-to-a-dollar mark on Tuesday hitting an all-time low of 91.14 intraday and closing at 91.0565, but made a sharp 0.70% rebound Wednesday after heavy dollar sale by the RBI helping it close 90.3475. According to him, the biggest structural change affecting the rupee is the sharp decline in foreign portfolio inflows compared with the pre-2014 period. Between 2007 and 2014, net portfolio inflows averaged $162.8 billion annually, providing strong support to the currency.
However, during 2015-25, average inflows have dropped to $87.7 billion, reducing the cushion that once absorbed global shocks. In 2025 alone, foreign portfolio investor outflows is nearing $19 billion, exerting sustained pressure on the rupee, particularly through equity markets. Ghosh also notes a sharp spike in the geopolitical risk index after the US imposed a 50% tariff on Indian exports.
Since the tariff announcement, the rupee has depreciated by nearly 5.7% against the dollar, the steepest fall among major global currencies during this period. The report also highlights rising demand for dollars in the merchant segment. Since July 2025, excess demand in the forward market has jumped sharply as importers and exporters stepped up hedging amid uncertainty.
Combined excess demand in the merchant market touched an unprecedented $145 billion, prompting intervention by the Reserve Bank, which is estimated to have sold nearly $30 billion in the forex market between June and October to curb excessive volatility, even as foreign exchange reserves declined modestly.