Deficits And Policy Outlook
The current account deficit is projected at about 1.0–1.2% of GDP in FY2025-26. The fiscal deficit is expected to narrow to around 4.3% of GDP in FY2026-27 from 4.4% in the current fiscal year. The Reserve Bank of India is expected to act to limit sharp moves rather than pursue a stronger rupee. With large foreign exchange reserves, USD/INR may settle in a 90–92 range in the near term. We saw last year how a spike in global oil prices pushed USD/INR above 92.00 for the first time, driven by India’s heavy import needs. The analysis back in 2025 correctly predicted that the Reserve Bank of India would step in to manage the currency within a broad 90-92 range. This active management has largely defined the trading environment since that period. As of today, the pair is trading near the top of that range around 91.85, reflecting ongoing pressure as Brent crude holds stubbornly around $95 per barrel. While this is down from the peaks seen in 2025, it is still high enough to keep the pressure on India’s import bill. The shift away from discounted Russian oil, which now accounts for just under 30% of imports, has also kept underlying demand for dollars firm.Positioning And Hedging Considerations
The RBI’s foreign exchange reserves remain a formidable buffer, currently standing at approximately $630 billion, which gives them significant power to curb excessive Rupee weakness. This strong position suggests the central bank will likely continue to defend the 92.50 level aggressively. Therefore, betting on a significant and sustained breakout in the immediate future seems like a risky proposition. Given this dynamic, selling short-dated USD/INR call options with strike prices above 92.50 appears to be a viable strategy to collect premium. One-month implied volatility has fallen from the highs of 2025 but remains elevated enough to make these trades attractive. Importers, on the other hand, should view any dips toward the 90.50-91.00 level as opportunities to hedge their future dollar payables using forward contracts. Create your live VT Markets account and start trading now.
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