Rupee's Troubles Far From Over: UBS Predicts Continued Pressure Amidst Weak Flows

• UBS Global Research's Rohit Arora predicts the Indian rupee will remain under pressure due to weak capital flows, a widening current account gap, and a recovering US dollar.
• The rupee underperformed peers last year due to weak domestic demand, tariff concerns, and RBI's FX reserve accumulation, with strong RBI intervention preventing a sharper fall.
• UBS expects the dollar to recover gradually, pegging the dollar-rupee rate at 94 for the coming year, and notes capital flows are at their lowest in over a decade.
• A potential trade deal could offer temporary support, but macro factors like limited FDI and weak capital inflows will continue to weigh on the currency.
• RBI views 3-4% annual depreciation as non-concerning, using the rupee as a shock absorber, especially with low inflation and uneven growth recovery.

Why It Matters: UBS forecasts continued pressure on the Indian rupee, expecting a dollar-rupee rate of 94 next year.