India's rupee is likely to remain under pressure in a higher oil-price environment, though the risk of a disorderly decline appears limited thanks to stronger foreign-exchange reserves and a recent correction in the currency's valuation, ING analysts said.
Analysts said India has weathered the latest oil shock relatively well, with fuel subsidies and diversified crude sourcing helping to cushion the impact on inflation and economic growth.
However, the analysts said the burden of adjustment has shifted to the currency. The rupee's recent weakness reflects not only a wider oil import bill but, more importantly, a shortage of capital inflows.
ING expects India's current account deficit to widen to around 2.1% of GDP in 2026 from roughly 0.5% last year, largely due to higher crude prices. Even so, the deficit remains far below levels seen during past episodes of market stress, such as the 2013 "taper tantrum."
Analysts argued that persistent foreign portfolio outflows and weakening net foreign direct investment have become the key drivers of rupee weakness. While India continues to attract solid gross FDI, higher profit repatriation by foreign firms and rising overseas investments by Indian companies have reduced net inflows.
ING said debt inflows should gradually improve, supported by stable fiscal conditions and easing inflation. Combined with Reserve Bank of India intervention and a sharp decline in the rupee's real effective exchange rate, that should help contain further losses.
ING forecasts the USD/INR rate at 95.50 by the end of 2026, with risks tilted toward gradual stabilization rather than a sharp depreciation.
