Rupee undervalued, falling despite low inflation on BoP strain: Citi India’s Samiran Chakraborty

Samiran Chakraborty, Chief Economist at Citi India, said the rupee could find stability near ₹91 over the next year if India’s balance of payments moves into surplus in the January–March 2026 quarter. He noted that stronger seasonal current account flows and a return of capital inflows may allow the Reserve Bank of India (RBI) to “put some floor on this rupee depreciation,” even though the currency’s path is likely to remain volatile.

Chakraborty added that India’s broader macro picture continues to resemble a Goldilocks scenario, with growth above 7% and inflation below 4% still possible in 2026. He said growth may moderate slightly as most fiscal and monetary support has already been delivered, while inflation could edge higher due to “mean reversion” and base effects. However, he does not expect next year’s inflation to prompt policy tightening.

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He explained that this year’s 180 basis points (bps) downward revision in inflation was driven by one-off factors: 100 bps from vegetables, 40 bps from other food items and 40 bps from core inflation declines tied to goods and services tax (GST) cuts. Chakraborty said these “idiosyncratic factors” are unlikely to repeat, making it improbable that inflation will fall as sharply again.

On structural inflation, Chakraborty said India may be shifting toward a 3–3.5% trend, supported by nearly two and a half years of core inflation around 3%. But he cautioned that food price volatility still creates uncertainty. The new consumer price index (CPI) series expected next year may help determine whether softer core inflation is driven by supply improvements or weaker demand.

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Discussing the rupee’s performance, Chakraborty said the currency appears “significantly undervalued” on standard valuation models. He noted that, unusually, the rupee depreciated despite India’s inflation being lower than global inflation. Instead, it followed balance of payment (BOP) pressures, with India likely to record two consecutive BOP deficits for the first time since 1991.

On the bond market, Chakraborty highlighted a mounting challenge. Pre-COVID bond issuance was around ₹10 lakh crore, but combined state and central government issuance in FY27 could exceed ₹30 lakh crore. With redemption pressures rising and the rate-cutting cycle nearing its end, demand for bonds will be under strain. He said the RBI’s large-scale OMO purchases, which reached ₹6 trillion this year, will need to continue to support the market.

For the full interview, watch the accompanying video

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