Trivedi argued that policymakers still have room to cut rates because inflation remains low. “I don’t think that should stop the RBI from cutting rates. We think that they will cut rates,” he said, pointing to a stable domestic inflation outlook.
He noted that the central bank seems more comfortable with market-led movements in the currency. “There definitely seems to be a greater willingness to accept volatility in the rupee,” he said, adding that this shift comes as the current account deficit has widened to 1.3% and US tariffs have hit India harder than expected. New export order readings from purchasing manager surveys also signal weaker trade conditions.
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Trivedi said the currency’s fall is a “natural way to adjust” to these pressures. The rupee has dropped 2% in two weeks due to reduced equity inflows and less optimism around a US-India trade deal.
Goldman Sachs expects global factors to offer support in the coming year. The firm sees the US Federal Reserve cutting rates three times and weakening the dollar by 3 to 4% over the next 12 months, helping emerging market currencies.
However, he does not see the rupee as an automatic buying opportunity. In his words, it is only in a “small undervaluation” range and may need stronger investor sentiment before recovering. He expects India’s strong growth and low inflation to first lift the equity market, later drawing portfolio flows to stabilise the currency.
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Goldman Sachs earlier forecast the rupee to reach 86.50 in 12 months, but Trivedi said that view could change. “Stability is more likely than a sharp appreciation,” he remarked, given the rupee’s past patterns of large moves followed by long periods of range-bound trading.
Trivedi also noted that while India’s bond yields remain attractive, global investors currently find countries like Brazil and South Africa more compelling. He said progress on a US-India trade agreement will be an “important catalyst” for faster capital inflows. Without it, he expects stabilisation to be slow and driven mainly by domestic fundamentals.
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