Rupee near 97: Rupee faces multi-front pressure; SBI Research calls for immediate protective measures

The rupee is facing pressure from a combination of foreign portfolio outflows, stronger dollar demand and a sharp rise in global bond yields, with the currency moving towards the 97-per-dollar level. SBI Research has called for immediate “protective guardrails” to counter speculative forces in the foreign-exchange market.

The rupee fell 0.5% to 96.3150 per dollar, its sharpest single-day decline in more than two months. SBI Research said demand from oil marketing companies, select corporates and foreign banks, along with $4.45 billion of FPI selling since the previous Friday, had added to the pressure.

SBI sees case for 25-bps rate hike

SBI Research said the balance of risks has “tilted decisively” towards a 25-basis-point rate hike at the October 5-7 monetary policy meeting. It cited a combination of broadening inflationary pressures, worsening global macro conditions, evolving liquidity conditions and renewed global repricing of risks.

The report said the global environment argues against waiting, pointing to rate increases by South Korea and the Philippines in August and by the US, Japan, the euro area and New Zealand in September amid renewed inflation risks.

Geopolitical tensions and crude price risks have further strengthened the case for pre-emptive action, according to SBI Research.

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Inflation becoming increasingly broad-based

SBI Research said India's inflation pressures are no longer concentrated in a limited number of commodities. CPI inflation rose to 4.82% in August from 4.45% in July, while the number of commodities accounting for 90% of CPI's weighted contribution increased from 22 in January to 51 in August.

The report expects CPI inflation to reach 5.65% in September and cross 6.5% in October and November, before easing below 6% in early 2027.

It also flagged the possibility of further price pressures where input costs are rising faster than output prices, particularly in electrical equipment, electronics, furniture, metals, pharmaceuticals and beverages.

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Liquidity may tighten despite FCNR inflows

SBI Research also challenged the view that record foreign-currency inflows have created abundant effective liquidity. Forex inflows under the special swap facility reached $143.5 billion, but CRR, SLR and LCR requirements constrain banks' ability to deploy incremental deposits.

The research house estimates that supporting 16% credit growth in FY27 would require an additional ₹8.2 lakh crore of deposits even after accounting for FCNR(B) inflows. It expects core surplus liquidity to decline from ₹13.9 lakh crore in mid-September to around ₹7 lakh crore by December-end and ₹3.5 lakh crore by March 2027.     SBI Research Report - RBI set t…

Monsoon adds another inflation risk

SBI Research also highlighted the 2026 monsoon, which was the fourth-driest since 2000 at 87% of the long-period average, with 43% of districts receiving deficient rainfall. Maharashtra has declared drought across 265 talukas.

However, Kharif sowing remained relatively resilient, at just 1.2% below last year's level as of September 25. The report warned that strong El Niño conditions and below-normal October rainfall could pose greater risks to Rabi output and food inflation.

SBI Research said India need not “press the PANIC BUTTON” yet, but policymakers and regulators should prepare for an eventuality in which evolving global macro conditions require unconventional measures to safeguard broader economic interests.

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