Rupee Likely to Bounce Back in second half of Next Fiscal as Global Pressures Ease: SBI

The Indian rupee, which has remained under pressure in recent months, is likely to stage a strong recovery in the second half of the next financial year, from October 2026 to March 2027, according to a report by the State Bank of India (SBI).

The report acknowledges that the rupee is currently in a depreciating phase, but argues that historical patterns and macro indicators suggest this trend will not be permanent. SBI believes the currency will exit the current depreciation regime and regain strength once global uncertainties begin to recede.

“We believe that the rupee is likely to bounce back strongly in the second half of the next fiscal,” the report stated.

SBI noted that earlier movements in the rupee were driven largely by robust foreign portfolio inflows. Prior to calendar year 2014, abundant capital inflows played a decisive role in supporting the currency. However, such inflows are no longer available at the same scale.

The report pointed out that geopolitical uncertainty, particularly delays in trade agreements and rising global fragmentation, has now emerged as the dominant factor influencing the rupee. The era of easy and large capital inflows has ended, it said, as global risks have taken centre stage.

Between 2007 and 2014, net portfolio inflows averaged $162.8 billion. In contrast, inflows between 2015 and 2025 (till date) have fallen sharply to $87.7 billion, highlighting a structural shift in global capital movement.

Despite these headwinds, SBI said India’s trade data reflects strong underlying resilience. The economy has navigated prolonged global uncertainty, rising protectionism and labour supply disruptions without major dislocations, underscoring the durability of its external sector.

The report also divided the rupee’s long-term movement into three distinct phases. In the first phase--January 2008 to May 2014--the rupee depreciated sharply, far outpacing the dollar’s appreciation. During this period, the dollar strengthened by an average 1.7%, while the rupee weakened by 16.3%, reflecting fragile domestic fundamentals.

In Phase II (May 2014 to March 2021), rupee depreciation broadly tracked the dollar’s rise. The rupee fell by 7.9% on average, while the dollar appreciated 5.1%, indicating a more aligned movement between the two currencies. In the third Phase--September 2024 to the present--SBI noted an unusual development: both the rupee and the dollar have been depreciating simultaneously. This, the report said, marks a new regime driven by heightened geopolitical and macroeconomic uncertainty.

While the rupee remains under pressure for now, SBI believes the currency will eventually exit the current depreciation phase. As global volatility eases and external conditions stabilise, the rupee is expected to recover meaningfully in the latter half of the next fiscal year.