For the rupee to stabilise, he said, there needs to be a meaningful pickup in nominal gross domestic product (GDP), easing stress in earnings, and an improvement in the current account deficit and foreign direct investment flows.
The rupee has already fallen to a fresh record low — a level many strategists, including Nim, had expected much later in the year.
Speaking about the sharp fall, Nim, an Economist and Forex Strategist at ANZ Research, said that while the direction was expected, the speed of the move has been surprising, pushing the currency into what he called “uncharted territory”.
Nim attributed the weakness to two broad forces at play. “Outflows from the Indian markets have continued,” he said, pointing to visible stress from the ongoing earnings season and global risk jitters.
But he said the bigger and more persistent driver has been real money flows, such as corporate hedging demand. “I believe this weakness had been growing for quite some time, and it’s not all of a sudden,” he said, adding that this points to a structural bias for the rupee to weaken further.
Nim said the Reserve Bank of India (RBI) appears to be tolerating the rupee’s decline. Since the pressure is coming from fundamental flows rather than speculative activity, the RBI is less likely to step in aggressively, as it has in the past. This also gives the central bank room to “refocus on the domestic liquidity situation,” which his analysis suggests has become a growing concern.
Nim also spoke about the rise in Indian bond yields, which he said is being driven more by domestic factors than by global cues. These include the weak rupee discouraging foreign bond inflows, rising fiscal stress at both the central and state levels, and expectations of an inflation rebound.
He contrasted this with the spike in Japanese Government Bond (JGB) yields, which he said is linked to Japan’s fiscal plans and is feeding into broader global risk aversion. “I would believe that at least Indian yields currently are driven more by domestic factors,” he said.
Also Read: UBS explains why the rupee’s troubles may not be over yet
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