Rupees: Volatility in the USD/INR market will continue, risks are shifted towards the weakening of the rupee

Analysts at Société Générale, one of Europe's largest financial conglomerates, presented their baseline scenario for the US dollar-Indian Rupee (USD/INR) currency pair. In their opinion, the market expects a period of increased volatility, with the balance of risks pointing to a potential weakening of the Indian national currency.

In their latest report, the bank's experts note that, despite the recent stabilization of the exchange rate below the key mark of 91.00, fundamental factors indicate a growing likelihood of further growth of the USD/INR pair.

Key factors of pressure on the rupee

Société Générale calls two interrelated elements the main drivers that can push the exchange rate up: the dynamics of oil prices and the general attitude of investors to risk in global markets.

Rising oil prices: India is one of the world's largest importers of crude oil. The increase in quotations for "black gold" directly increases the demand for dollars from Indian companies to pay for imports. This creates natural pressure on the rupee, weakening its exchange rate. If oil continues to rise, the pressure on the Indian currency will only increase.

Deterioration of global risk sentiment: During periods of global uncertainty, investors traditionally move away from risky assets, which include emerging market currencies (including the rupee), and transfer capital to defensive assets, the main of which is the US dollar. Any increase in geopolitical tensions or concerns about a slowdown in the global economy could trigger capital outflows from India and strengthen the dollar.

Technical forecast: Target at 92.00

From a technical point of view, Société Générale analysts identify the 91.00 level as critically important. A steady consolidation of the USD/INR exchange rate above this mark will be a strong bullish signal. According to the bank, this will open a direct path to the next psychologically important level — 92.00.

Constraints: What can support the rupee?

Despite the predominance of weakening risks, there are also factors that can limit the growth of the dollar in the short term.

Reserve Bank of India (RBI) interventions: The Central Bank of India is actively monitoring the stability of the national currency. With sharp volatility spikes, the RBI can enter the market with currency interventions, selling dollars from its reserves to support the rupee. Prolonged and large-scale actions by the regulator can effectively restrain the growth of the USD/INR pair.

Capital inflow: The improvement of the investment climate in India and the growing interest from foreign investors may lead to an increase in capital inflows to the country. This, in turn, will increase the supply of dollars in the domestic market and support the rupee.

Conclusion

The Société Générale baseline scenario assumes that the Indian rupee remains vulnerable. Although the actions of the Reserve Bank of India and the potential influx of investments may temporarily stabilize the situation, the fundamental risks associated with high oil prices and a possible deterioration in global sentiment are shifting the scales towards a further weakening of the rupee. Investors and market participants should keep a close eye on the level of 91.