Goldman Sachs Group Inc. has warned that the Indian Rupee (INR) could tumble to 95 against the US Dollar (USD), even as the local currency fell to a record low today.
INR-USD fell to an intraday low of 92.4875, surpassing its previous record close of 92.4575 set last Friday. The Reserve Bank of India (RBI) has been actively intervening in the markets to cushion the slide, according to traders, as the fallout from the Iran war widens India’s current account deficit.
Widening Deficits
“The rupee remains under pressure in our view, given the current account deficit is widening,” Santanu Sengupta, Goldman Sachs’ chief economist for India, said Wednesday in an interview with Bloomberg TV.
Goldman Sachs recently revised its outlook for India, cutting growth forecasts for this year to 6.5% from 7%, while raising inflation estimates by 30 basis points. The firm predicts the current account deficit will expand to 1.2% of GDP this year, up from 2025 levels.
One basis point is one-hundredth of a percentage point.
RBI Monetary Policy
While India’s inflation rate remains within the RBI’s target range for now, a prolonged weakness in rupee combined with surging oil prices could force Governor Sanjay Malhotra’s hand.
The RBI kept the repo rate unchanged in February, signaling a long pause, but Goldman’s Sengupta believes that if energy costs filter through to the consumer, then the RBI will be forced to tighten. “That question will come up further down the line rather than now,” he said.
But instead of immediate rate hikes, the central bank is expected to provide liquidity support to keep the economy buoyant.
India’s Fiscal Shield
The Indian government is expected to lean on fiscal tools rather than monetary policy to absorb the shock. To protect consumption, New Delhi may lower excise duties on fuel or ramp up fertilizer subsidies—a critical sector for the rural economy, which has remained resilient due to low food prices.
“The government, in our view, will do all it takes to really protect that sector from full inflation,” Sengupta said, estimating the subsidy bill could rise by 0.3% of GDP.
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Despite the geopolitical headwinds, Goldman remains “fairly optimistic” about the Indian economy’s underlying strength, though much depends on the duration of the Iran conflict and the trajectory of crude oil prices.
