Rupee Faces Structural Depreciation Pressure Despite RBI Intervention, Says Systematix Report

The Indian rupee may continue to face structural depreciation pressure, with domestic brokerage firm Systematix estimating a new average annual depreciation path of roughly 6.5 per cent for the currency. According to the research house, the Reserve Bank of India’s ongoing efforts to rebuild its foreign-exchange reserves provide only temporary stability and merely delay underlying market pressures.

Systematix noted that the rupee has depreciated by about 17 per cent over the past two years, moving from approximately ₹83 to nearly ₹97 per dollar, despite substantial intervention by the central bank. The brokerage suggested that without aggressive central bank intervention, the currency could have already crossed the ₹100-per-dollar threshold. During FY25 and FY26, the RBI’s foreign-currency purchase and sale transactions reached nearly 98 per cent of its foreign currency assets stock. The firm contrasted this with the 2013 taper-tantrum period, when a smaller mobilisation programme was followed by an appreciation of about 10 per cent in the rupee.

The report argues that foreign-exchange mobilisation alone cannot secure lasting exchange-rate stability. Since 2013, the rupee has depreciated by around 100 per cent, underperforming both broad dollar indices and emerging-market currency benchmarks. Systematix attributes this ongoing weakness to a combination of productivity trends, capital flows, trade competitiveness, inflation, and broader policy factors.

India's external trade position presents additional concerns outlined in the report. The trade deficit widened to between $86.6 billion and $86.8 billion in the first quarter of FY27. At the same time, the trade deficit with China reached record levels, annualizing at roughly $120 billion. Services exports also contracted during the first quarter, with estimated exports dropping to around $49 billion, marking an 18 per cent sequential decline.

The brokerage further pointed to a sharp drop in the rupee’s real effective exchange rate, which has fallen by about 17 per cent since late 2024. Despite this depreciation, exports have not experienced a proportional strengthening, partly due to Indian manufacturing remaining dependent on imported inputs.

Looking ahead, Systematix anticipates that the rupee's depreciation trajectory will remain elevated and volatile. While an additional $80 billion in foreign-currency assets may raise import cover to approximately 10 months and offer near-term intervention capacity, the report cautions that these buffers could be depleted rapidly if global interest rates rise or capital outflows intensify.

"The findings from the Systematix report highlight the macroeconomic challenges businesses face regarding currency volatility and external trade deficits. For entrepreneurs and business leaders operating in India, currency depreciation directly impacts import costs, supply chain margins, and capital allocation strategies. While foreign-exchange reserves provide short-term stability, companies must build resilient financial planning models that account for structural currency movements and changing global economic conditions." — Dr. Shishir Gupta, Founder & CEO, StartupLanes