Rupee to remain in appreciating mode despite global volatility: Report

New Delhi: The Indian rupee is likely to remain in an appreciating territory even as global markets remain engulfed in turbulence, while the government and the Reserve Bank of India (RBI) may need to consider further policy steps to shore up resilience, a report said on Thursday.

The report from SBI Research forecasted inflation to peak at around 6.8 per cent in November 2026. It predicted that India’s 10-year yield will likely touch 7.6 per cent which will aid in price discovery in the future as well.

“The USD/INR forward implied yield opened at 4.60 per cent, around 42 bps higher than yesterday's close,” the report noted.

Higher hedging costs make dollar funding more expensive and could encourage corporates to shift towards INR-denominated borrowing, supporting demand for the rupee, it added.

“The RBI has done a stupendous job and now the government must step up in reducing structural frictions on the taxation front, European Central Bank policy, ODI and AI policy,” the report noted.

The RBI could adopt a calibrated tightening approach through an asymmetric corridor adjustment, raising the MSF rate by 50 bps from 5.75 per cent to 6.25 per cent in the interim.

This could be followed by a 25 bps repo rate hike in December, taking the repo rate to 5.75 per cent and the MSF rate to 6.50 per cent, it forecasted.

Global financial markets are likely to remain volatile amid persistent geopolitical uncertainties, elevated US yields and evolving inflation dynamics.

The RBI has taken salutary steps to stabilise market conditions and can act up to a point, but further measures by the government on the taxation front, particularly concerning G-secs and ECBs clarity on AI policy, could help deepen domestic borrowing avenues and support capital flows.

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