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Rupee May Plunge to 97/USD if West Asia Crisis Persists: Yes Bank

A Yes Bank report warns the Indian rupee could depreciate to 97-97.50 against the US dollar in the first half of FY2027 if the West Asia geopolitical crisis continues. The primary drivers are elevated oil prices, which are expected to widen the current account deficit and increase production costs, thereby fueling retail inflation. The report notes that a 5% rupee depreciation could directly increase headline CPI inflation by 30-35 basis points. Furthermore, economic growth is projected to slow due to weaker domestic consumption and impacted exports, despite strong domestic fundamentals earlier in the fiscal year.

Key Points: Rupee Could Weaken to 97/USD by FY27 on Geopolitical Crisis

  • Rupee may hit 97-97.50/USD in H1FY27
  • High oil prices to widen current account deficit
  • Depreciation could spike inflation by 30-35 bps
  • Growth momentum expected to slow
3 min read

Rupee may weaken to 97/USD in H1FY27 if West Asia crisis continues: Report

Yes Bank report warns the Indian rupee may fall to 97-97.50 against the dollar in H1FY27 if the West Asia conflict continues, fueling inflation and widening CAD.

"RBI will have to be open to accept higher depreciation pressures if the crisis continues. - Yes Bank Report"

Mumbai, April 1

The Indian rupee may come under further pressure in the coming months if the ongoing West Asia crisis continues, with the Reserve Bank of India likely needing to remain flexible in its approach, according to a report by Yes Bank.

The report stated that the rupee could weaken to 97.00-97.50 against the US dollar in the first half of FY27.

"RBI will have to be open to accept higher depreciation pressures if the crisis continues. We see USD/INR at 97.00-97.50 in H1FY27, with the view altering if the war ends and oil returns to a more reasonable level of USD 65-75/bbl."

Explaining the reasons behind this outlook, the report said that the "goldilocks" phase of the Indian economy has been disrupted due to the West Asia crisis.

"With oil prices jumping, the fiscal has been opened to absorb the shock," it said, highlighting that rising global commodity prices are likely to increase production costs for manufacturers and push up retail inflation.

The report also pointed out that currency depreciation could further fuel inflation. "A 5 per cent depreciation of the INR is likely to lead to a 30-35 bps increase in headline CPI," it said.

On growth, the report indicated that economic momentum may slow. "Growth is expected to slow due to lower domestic consumption demand as GST impact fades and with exports likely being impacted by the global slowdown," it added.

Despite strong domestic fundamentals earlier in FY26--with GDP growth averaging 7.7 per cent, retail inflation at 1.7 per cent and CAD at 1.0 per cent--the external sector has weakened.

"Capital flows... significantly failed to finance the low CAD, leading to a BoP deficit... at USD 30.8 bn," the report said.

It further highlighted that foreign investments remained weak. "FDI aggregated at USD 3 bn, with repatriation flows nullifying the inward flows," while "portfolio investments... saw net outflows... at USD 4.3 bn."

Looking ahead, the report projects oil prices to remain elevated, with likely scenarios averaging USD 85-95 per barrel in FY27. Under these conditions, the CAD is expected to widen to 1.6-2.0 per cent of GDP.

The report further estimates a BoP deficit of USD 44 billion if oil averages USD 85 per barrel and USD 61 billion if prices reach USD 95 per barrel.

It also warned that weakening growth, rising inflation and fiscal pressures could increase India's risk premium. Additionally, several IPOs are being postponed due to weak market conditions, despite a strong pipeline.

While RBI measures such as changes in net open position rules may provide some support, the report said underlying pressures on the rupee remain strong. With imports expected to rise due to higher oil prices, India's import cover is also likely to weaken during FY27.

- ANI

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Reader Comments

R
Rohit P
Our economy was doing so well! It's frustrating that external factors like a war far away can disrupt our "goldilocks" phase. Hope the RBI's measures are effective. We need to focus on boosting domestic manufacturing and reducing oil dependency in the long run.
A
Arjun K
The report is a bit too pessimistic, in my opinion. India has weathered global storms before. Our fundamentals are strong, and the RBI has ample reserves to manage volatility. Let's not panic over projections for FY27 just yet.
S
Sarah B
As someone working in exports, a weaker rupee should theoretically help us. But if global demand is slowing down and our production costs are rising due to inflation, it's a double-edged sword. The CAD numbers are concerning.
V
Vikram M
The postponement of IPOs mentioned here is a bad sign for the market sentiment. It affects job creation and capital formation. The government should consider policy interventions to attract the FDI that's clearly drying up.
K
Kavya N
While the analysis seems thorough, I respectfully disagree with the tone. Reports like this can become a self-fulfilling prophecy by spooking investors. Media should also highlight the positive steps being taken instead of just doomsday scenarios.
D
David E
The link

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