Battered by outflows, oil fears from the Iran war and faltering investor confidence, the Indian rupee is closing the fiscal year with its worst annual performance in more than a decade.
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And, India’s largest private lender HDFC Bank is facing questions from investors following the sudden exit of its chairman. Scroll down for more on that.
THIS WEEK IN ASIA
RUPE: 100 OF THEM?
The financial year 2025-26 proved to be an annus horribilis for the Indian rupee.
The currency is set for its worst annual performance in 14 years, down 11% to 94.83 against the US dollar.
Foreign investors have moved away from India – despite global economic growth of 7.6% over the past 12 months – hampered by a combination of high equity valuations, a shortage of AI-related stocks and punitive US trade tariffs.
The Indian currency fell to a record low of 95.21 on Monday.
The rupee has also weakened against regional peers, particularly the Chinese Yuan, against which it has fallen by around 14% in the past 12 months.
Already weighed down by massive outflows, oil’s move means the rupee now faces a widening current account deficit, expected at 0.9% of GDP next fiscal year.
JP Morgan predicts this will grow to 1.5% of GDP if oil prices reach $80 a barrel this year, and to 2.6% if they reach $100.
WARNING PARK
Indian officials have been scrapping the crisis playbooks since 2013, when the rupee was under pressure from the so-called taper tantrum caused by the US Federal Reserve.
However, an expected hike in government yields has led to the biggest rise in bond yields in nearly four years, adding to the list of downsides for the rupee.
He suggested that if high prices are not transferred to eliminate consumers at all, their continued strong demand could increase inflationary pressure and force the central bank to tighten monetary policy.
“High interest rates weigh on the whole economy,” he said.
The central bank will announce its next monetary policy decision on April 8.
The monetary authority has already managed market volatility with effective but rare intervention in the currency and bond markets, though that has eaten into India’s forex reserves.
The funds are now sufficient to cover about 9.2 months of imports, which is set for the central bank’s first book, IDFC First Bank economist Gaura Sen Gupta said in a report last week.
That could fall to 7.2 months in March 2027 if the crisis continues, but will remain above the 6.5 months seen during the 2013 financial crisis, the report said.
Sen Gupta said the central bank may be looking at measures to attract dollar flows – such as recent rules relaxed for foreign loans by businesses – but a 2013 subsidy-backed policy to withdraw deposits from non-resident Indians is not yet in the cards.
Former Indian banker Uday Kotak took a different view, writing in X: “If things get worse politically, is there any chance of a new type of non-resident deposit scheme?”
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India is also shifting its oil reserves due to supply disruptions in the Middle East.
India has not bought any Iranian products since May 2019.
THIS WEEK’S MUST-READ
The unexpected resignation of HDFC Bank chairman Atanu Chakraborty this month caused a $16 billion dent in shares of India’s largest private lender, but the story doesn’t end there, Reuters reports.
Clashes between Chakraborty and CEO Sashidhar Jagdishan had surfaced publicly, but rifts between the bank’s management deepened.
And those conflicts, along with slowing profits after the 2023 merger with its parent HDFC Ltd, have added pressure on management.
Reporting on Ira Dugal; Edited by Kevin Buckland
Our standards: The Thomson Reuters Trust Principles.
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