Rupee Under Pressure, Economy Still Strong? BofA's Rahul Bajoria Explains India's Outlook

Added: 2026-05-31

[00:00:00]Turn to our conversation with Rahul Bajoria, head of India and ASEAN economic research at BofA Global Research. We're speaking to Rahul even as the BofA conference kicks off. Rahul, great to have you on and always a pleasure to have you on the show.

[00:00:14]Is the outlook looking less gloomy than what the screen shows right now? How are you seeing it from an Indian perspective?

[00:00:26]>> Sorry, the voice is not very clear, Tamanna.

[00:00:29]>> Can you hear me at all, Rahul? Can you hear me at all?

[00:00:36]>> Yeah, I can hear you now.

[00:00:37]>> Okay. Okay. My question, Rahul, was what is the outlook looking like for you from an economist's lens? Is it as gloomy as what we're seeing on the screen from an Indian perspective?

[00:00:51]>> So, Tamanna, thank you for having me.

[00:00:54]You know, I I would say, you know, when we are looking at the numbers, right? I mean, the actual activity data 3 months into the war has actually been improving after a very weak month of March. The data that's coming out for April and and what we have seen very early indicators for May are actually pointing to a picture of resilience on the on the macro side. But then, we have just had, you know, we are starting to see the transmission of higher global commodity prices starting to play out in the in the Indian economy. So, maybe the the impact of of of higher prices is going to feed in with a little bit of a lag, but overall, it's a it's a picture of resilience that we are seeing despite the fact that market sentiment and obviously market asset prices have been on the weaker front.

[00:01:42]>> Rahul, hi. Morning.

[00:01:44]There have been some calls for a rapid rate increase starting June by some people. And I'm just wondering, with inflation not having yet indicated that upside because of whatever we've been seeing over the last few months, whether the RBI will bite the bullet.

[00:02:03]You you say 50 basis points is expected, but do you expect it to take place as early as June?

[00:02:13]>> So, we are not in that camp, Neeraj. You know, we are essentially of the view that, you know, the Indian economy is not overheating, right? And if there is not a current account problem because of demand conditions, but rather a current account problem because of terms of trade and higher commodity prices destroying economic activity or, you know, destroying aggregate demand via a rapid tightening of monetary policy actually does not really help because it's akin to, you know, doing a successful operation but then also killing the patient. And so, we are more in the camp that, you know, there have to be steps taken to kind of shore up the capital account side of the balance sheet. You know, there have to be steps taken to basically bring in more capital, you know, and and that can provide stability to the rupee. But then, you know, aggressive front-loaded monetary policy tightening is not something we think is warranted given the state of the economy right now.

[00:03:06]>> Okay. Rahul, that was the Alex, but it was a smart question, so I take credit for that as well. This is Neeraj here.

[00:03:12]Good morning. And I I would love to know, Rahul, when when you think of what is it that the rupee could do over the course of the next few weeks or months with with the with the belief, of course, that or with a hypothesis that the conflict comes to an end in in in the next 2 months sometime. I know it's difficult to pencil in, but with that as a basic hypothesis, what is it that could happen to the currency because the doomsday scenarios have been painted quite a bit already?

[00:03:47]>> Yeah, no, I agree. And and and I think a lot of that negativity is already in the price. You know, the rupee has been underperforming quite a bit relative to other Asian currencies. But my overall sense is that you know, there is still the path of least resistance is for a weaker INR, right? And and and this kind of comes in from the view that you know, there was a capital account problem even before the war started. After the war, there's been an increase in the current account deficit funding requirements. If the war was to end, let's say in the next week, in 2 months, you know, it will reduce the current account problem.

[00:04:21]But the capital account problem, you know, of outflows, etc. And and the fact that India is screened as a negative AI story is likely to remain with us. And you know, that will keep the rupee, you know, under some pressure. We are not necessarily in the camp that there's a need for rapid depreciation. We are looking at 98 by the end of this year.

[00:04:39]We are looking at 99 in about a year's time. But this, you know, could get aggravated if the dollar itself what was to start strengthening, you know, which is a risk, you know, that one has to keep at the back of their mind.

[00:04:52]>> Okay. Okay.

[00:04:54]The question on gold Rahul, which is that there has been a call or appeal, if you can call it that, by the Prime Minister to reduce gold imports.

[00:05:08]But the data still showing that there is significant import. So, what needs to happen for the currency to get a bit of a lift at this point, barring any action by the Central Bank or by the government?

[00:05:24]>> So, our view has been very clear on this right from start that you know, in a in a world where you know, you have, you know, higher inflation likely and you will see probably some amount of demand destruction happening organically. What can really be a bit of a circuit breaker here for the effects is capital flows, right? I mean, that's where the problem started. And and if we are able to attract back money in a big way, whether it's through the equity market channel, through the debt market channel, through the corporate balance sheets, you know, which are quite de-levered and can actually raise a lot of funding in a short amount of time. So, measures to basically bring back capital in the country, you know, and and a sustained amount of capital, not just a bit of a sugar rush through the hot money channel, is what is really needed. And so, what we are looking for is basically an all hands approach from the government, from the RBI to kind of take certain steps. The question really becomes, you know, what is the right time to do it? And in our view, the right time is probably to kind of try and wait and see if the war does come to an end. And you know, after which, you know, you could see measures coming out together to basically stabilize the rupee, right? But whether the measures on gold or you know, kind of exhortations to reduce travel, these are marginal steps, you know, they will help, but they will not necessarily solve the problem.

[00:06:38]>> A fair point. All right. Rahul, on that note, thanks so much for taking the time and look forward to the next chat as well.