Rupee set to stay in appreciating mode despite global volatility: SBI Research
Synopsis
Despite global turbulence, SBI Research says the Indian rupee is set to stay on an appreciating path — but the central bank alone cannot hold the line. With inflation forecast to peak at 6.8% in November and a possible repo rate hike on the horizon for December, the report is a pointed nudge to the government to step up on taxation and policy reform before the window narrows.
Key Takeaways
SBI Research expects the Indian rupee to remain in appreciating territory despite ongoing global market volatility.
Inflation is forecasted to peak at around 6.8% in November 2026 .
India's 10-year yield is projected to touch 7.6% , according to the report.
The RBI could raise the MSF rate by 50 bps to 6.25% in the near term, followed by a 25 bps repo rate hike in December to 5.75% .
The report called on the government to address structural frictions on taxation, G-secs , ECBs , and AI policy to support capital flows.
The Indian rupee is likely to hold its appreciating trajectory even as global financial markets remain turbulent, though both the government and the Reserve Bank of India (RBI) may need to consider further policy measures to sustain resilience, according to a report by SBI Research released on Thursday, 15 October 2026. The report, one of the more closely watched domestic macro assessments, offers a nuanced view of where the currency and interest rates could be headed in the months ahead.
Inflation and Yield Outlook
SBI Research forecasted that inflation will peak at around 6.8% in November 2026, before presumably easing thereafter. On the bond market front, the report predicted that India's 10-year yield will likely touch 7.6%, a level it argued would aid in price discovery going forward.
The report also flagged that the USD/INR forward implied yield opened at 4.60%, approximately 42 basis points (bps) higher than the previous day's close — a notable intraday shift reflecting the heightened cost of hedging currency risk.
Why Higher Hedging Costs Could Help the Rupee
According to the report, elevated hedging costs make dollar-denominated funding more expensive for Indian corporates. This dynamic, it argued, could incentivise a shift towards INR-denominated borrowing, in turn supporting demand for the rupee. This is a structural tailwind often overlooked in conventional currency analysis.
What the RBI Has Done — and What the Government Must Do Next
The report was notably direct in its assessment of institutional roles. 'The RBI has done a stupendous job and now the government must step up in reducing structural frictions on the taxation front, European Central Bank policy, ODI and AI policy,' it stated. In other words, the central bank's toolkit may be approaching its limits, and fiscal and regulatory action is needed to complement monetary policy.
On the monetary side, SBI Research suggested the RBI could adopt a calibrated tightening approach through an asymmetric corridor adjustment — specifically, raising the Marginal Standing Facility (MSF) rate by 50 bps from 5.75% to 6.25% in the near term. This could be followed by a 25 bps repo rate hike in December, taking the repo rate to 5.75% and the MSF rate to 6.50%, the report forecasted.
Global Uncertainty Remains the Backdrop
Global financial markets are expected to stay volatile, driven by persistent geopolitical uncertainties, elevated US yields, and shifting inflation dynamics across major economies. The report stressed that while the RBI has taken meaningful stabilisation steps, further government action — particularly on taxation related to government securities (G-secs) and External Commercial Borrowings (ECBs), and greater clarity on AI policy — could help deepen domestic borrowing avenues and attract capital flows. This comes amid a broader global pivot where emerging market currencies face persistent pressure from a high-rate US environment.
What to Watch
Analysts and investors will be tracking whether the government responds with concrete steps on the taxation and policy fronts flagged by SBI Research, and whether the RBI follows through on the corridor adjustment and December rate hike scenario outlined in the report. Any further escalation in geopolitical risk or an unexpected spike in US yields could complicate the rupee's appreciating bias and test the central bank's resolve.
Point of View
And without fiscal and regulatory follow-through on G-secs taxation and ECB clarity, the appreciating bias in the rupee remains fragile. The projected repo rate of 5.75% in December, if materialised, would also mark a meaningful shift in the rate cycle narrative that markets have not fully priced in. The bigger risk is that policy action arrives too slowly, leaving the RBI to carry the load alone — a scenario that rarely ends well for emerging market currencies when global conditions deteriorate sharply.
NationPress
15 Oct 2026
Frequently Asked Questions
Why is the Indian rupee expected to remain in appreciating mode?
According to SBI Research, higher hedging costs on dollar funding are encouraging Indian corporates to shift towards INR-denominated borrowing, which supports demand for the rupee. The RBI's stabilisation measures have also helped maintain the currency's upward bias despite global volatility.
What is SBI Research's inflation forecast for India?
SBI Research forecasts that inflation will peak at around 6.8% in November 2026. The report also projected that India's 10-year bond yield will likely rise to 7.6%, which it said would aid price discovery in the bond market.
What RBI policy steps has SBI Research recommended?
The report suggested the RBI could raise the MSF rate by 50 bps from 5.75% to 6.25% in the near term, followed by a 25 bps repo rate hike in December, which would take the repo rate to 5.75% and the MSF rate to 6.50%.
What role does the government need to play, according to the report?
SBI Research stated that the government needs to reduce structural frictions on the taxation front, provide clarity on AI policy, and address issues related to G-secs and ECBs. The report argued these steps are necessary to deepen domestic borrowing avenues and attract sustained capital flows.
What is the USD/INR forward implied yield signal mentioned in the report?
The report noted that the USD/INR forward implied yield opened at 4.60%, approximately 42 basis points higher than the previous day's close, reflecting elevated currency hedging costs that could make dollar borrowing less attractive for Indian corporates.
