Citi Sees India Tightening Currency Controls to Halt Rupee Slump

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(Bloomberg) — India may take a number of steps in coming months to bolster foreign reserves and the rupee, including possibly restricting outflows from businesses, according to Citigroup Inc. 

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The government has already taken several measures, including hiking fuel costs and increasing taxes on gold imports, to curb foreign outflows as soaring global oil prices put pressure on India’s current account deficit. Authorities may now consider steps to encourage foreign inflows, and could look at tightening rules on outward investment by businesses, Citi economists led by Samiran Chakraborty said in a research note.

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While India’s economy is on a stronger footing now compared to past episodes of rupee weakness, disruptions to energy supplies and surging oil import bills triggered by the Middle East conflict have intensified the challenge for policymakers. The rupee is Asia’s worst performing currency so far in 2026, down more than 7% against the dollar.

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“The initial set of measures have been in favor of not letting growth and inflation to be affected and allowing the shock to be absorbed by current account and fiscal,” Chakraborty said, referring to fuel tax cuts and credit guarantees. “But more recent policies in May indicate a shift towards curbing the balance of payment deficit and identifying tax revenue streams.”

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Among the measures Citi sees as having a “high” likelihood of being introduced over the next month are tighter curbs on overseas direct investment by Indian firms, stricter rules requiring exporters to repatriate foreign-currency earnings more quickly, higher import duties on edible oils and measures to encourage more overseas borrowing by banks. Steps to encourage inclusion in the Bloomberg Bond Index and further fuel price hikes are highly likely too. 

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India maintains some capital account restrictions on residents, which limits the amount of money they can take out of the country. The government has said it’s committed to gradual liberalization of controls over time. There are no restrictions on foreigners repatriating their investments.  

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The Reserve Bank of India didn’t immediately respond to a request for comment Wednesday. 

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India’s external stress is being driven by a capital account shock due to weaker foreign investment inflows, money fleeing abroad via overseas investments by Indian firms, and foreign companies repatriating profits, according to Citi. At the same time, foreign investors have sold Indian bonds aggressively, pressuring the rupee and reducing the capital inflows needed to finance a widening external deficit.

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Such a backdrop makes measures to discourage capital outflows more attractive as they can produce an immediate impact, Citi said, even though such steps risk hurting investor sentiment over the longer term.

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“Regarding capital flows, the choice lies between immediate impact through capital controls and more conducive medium-term policy to encourage inflows,” Citi said.