Far from being a reflection of economic weakness or loss of investor confidence, experts suggest that this currency movement is being driven by changes in market participation, policy design, and liquidity dynamics.
Market voices like renowned global strategist Christopher Wood of Jefferies, and Ponmudi R, CEO of Enrich Money, provide contrasting yet deeply insightful perspectives on this complex issue—highlighting how the interplay between domestic regulatory changes and global macroeconomic trends may be shaping the rupee’s trajectory in the years ahead.
Ponmudi R argues that the conversation around the rupee nearing 100 per dollar in 2026 is no longer rooted in speculation—it has entered the realm of policy, liquidity, and structural shifts.
According to him, the rupee’s depreciation does not reflect a decline in India’s growth momentum. Instead, it stems from structural market dynamics, such as global economic forces and changes in domestic currency market participation.
“India continues to be one of the fastest-growing large economies globally,” he says, highlighting domestic consumption and healthy corporate balance sheets. However, the currency market paints a different picture, where price movements have become one-sided, liquidity has thinned, and central bank intervention is more frequent.
Is 100 a crisis level or a structural drift?
Ponmudi frames the risk of USD/INR reaching 100 not as a sudden crisis but as a gradual drift. “Such a move would reflect market structure and global alignment rather than a loss of confidence in India’s economic fundamentals,” he explains. The move, he says, requires “persistence,” not panic.
Stabilisation, in his view, lies not in capital controls but in recalibrating participation and strengthening onshore price discovery. Encouraging retail involvement, diversifying exports, and improving coordination between the RBI and SEBI could help rebuild currency market depth and resilience.
Participation problem
One of the central themes in Ponmudi’s analysis is participation, or rather, the lack of it. While equity markets have benefited from the steady involvement of retail investors, mutual funds, and long-term allocators, the currency markets have lost critical participants following regulatory changes in 2024.
These changes restricted access to exchange-traded currency derivatives for entities without proven underlying exposure, prompting many liquidity providers to exit the space.
The result? a structurally weaker currency market with diminished price discovery. USD/INR futures turnover on Indian exchanges has reportedly fallen by 80–90%, making the market shallow and prone to volatility. In Ponmudi’s words, “Thin markets do not reduce volatility; they amplify it.”
Offshore migration and increasing reliance on the RBI
As domestic participation waned, offshore venues like SGX USD/INR futures gained traction. This shift, Ponmudi notes, reduces India’s control over its currency valuation, as it becomes increasingly reliant on offshore price discovery and RBI intervention in the spot and forward markets.
He warns that this dynamic places a heavier operational burden on the central bank and raises questions about India’s ability to manage its currency independently in the face of global capital flows.
The global pressure
While domestic market design is crucial, Ponmudi also points to external forces contributing to rupee pressure. These include persistent US dollar strength, volatile capital flows, current account deficits, and rising geopolitical risks
He emphasises that such global drivers tend to be absorbed smoothly in deep markets, but in India’s current shallow setup, they translate into sharper rupee declines.
The feedback loop doesn’t end there. Currency depreciation has spilt over into the precious metals market. With India being a major importer of gold and silver, both priced in dollars, a weaker rupee pushes up local prices, fueling demand and exacerbating the trade deficit.
Christopher Wood offers contrasting view
However, Christopher Wood of Jefferies offers a different, macro-driven lens. He believes that while the rupee’s bruising slide past 90 may be nearing its end, any recovery will be “grudging and hostage to politics, trade and a newly dovish Reserve Bank of India.”
Wood concedes that the sharp 5.3% rupee depreciation this year surprised him, but he rules out a classic balance-of-payments crisis. Instead, he points to a near-record current account deficit of 0.6% of GDP in FY26 and foreign exchange reserves of USD 687 billion as signs of underlying stability.
Wood also highlighted a divergence in foreign capital flows. While gross FDI inflows remain robust at USD 81 billion in FY25 and USD 50 billion in the first half of FY26, portfolio investors have pulled USD 17.8 billion from Indian equities in 2025. This exodus contributed to India’s underperformance relative to other Asian and emerging markets.
Yet, he notes, the rupee’s real effective exchange rate (REER) is still about 12% stronger than its 2013 trough, suggesting there’s room for depreciation without necessarily triggering a crisis.
Wood flags trade policy as the biggest swing factor ahead. With punitive US tariffs of 50% on Indian goods since August, he warns that failure to secure a trade deal could worsen India’s already-bloated trade deficit. In his view, this could complicate the RBI’s calculations, especially after the central bank under its new governor, Sanjay Malhotra, pivoted toward growth with 125 basis points of rate cuts in 2025.
Conclusion
Both voices stress that the rupee’s path to 100 versus the dollar, while not inevitable, is structurally plausible. Whether it’s a matter of domestic market reform or global trade headwinds, the risk is real and worthy of close monitoring.
As Ponmudi puts it, “The path to rupee stability lies in restoring liquidity, confidence, and participation—not just tighter regulation or RBI firefighting.”
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
