India's balance of payments is likely to remain under pressure through the rest of 2026-27, with elevated commodity prices, tighter global financial conditions and weak portfolio inflows keeping the rupee vulnerable, ANZ Research said.

Persistent external pressures have placed the balance of payments and foreign exchange management at the centre of policy discussions, the bank said in a report titled India: Notes from the Ground, authored by economists Sanjay Mathur and Dhiraj Nim.

ANZ said an improvement in India's balance of payments through underlying trade and investment flows appeared unlikely in the near term, as the country faced limited participation in the artificial intelligence-led global trade cycle, high commodity prices and tighter global financial conditions.

The economists expect the rupee to depreciate gradually, noting that elevated commodity prices and tight global financial conditions continue to drive substantial underlying dollar demand.

Although India's current account deficit is expected to remain around 1% of GDP, weak portfolio inflows and tighter global capital flow conditions are likely to keep external financing under strain.

ANZ said the RBI's net short forward foreign exchange position was already near $200 billion, making a rapid drawdown of recently accumulated reserves potentially costly. A sustained improvement in the rupee's outlook would require an organic recovery in the balance of payments.

On monetary policy, ANZ expects the RBI to raise the repo rate by another 50 basis points following Wednesday's 25-basis-point increase to 5.50%.

The bank expects two further 25-basis-point increases, taking the repo rate to 6.00%, compared with one-year market pricing that implies 6.50%.

ANZ said rising inflation risks, elevated crude oil prices, and higher global interest rates warranted further monetary tightening, although the central bank would likely calibrate its response carefully.

The inflation outlook remained uncertain because of persistent high oil prices, the extent of food inflation, and the potential pass-through of higher input costs to consumers. Despite its less aggressive baseline forecast, ANZ saw little reason to strongly challenge current market pricing.

India's economic growth, meanwhile, remains resilient despite multiple shocks, but the drivers of expansion are becoming increasingly uneven.

ANZ expects GDP growth of around 7% in 2026-27, although weak formal employment generation and subdued real wage growth continue to weigh on private consumption.

Private investment could partly offset the weakness in consumption, but the recovery remains concentrated in infrastructure, construction and a limited number of companies, raising questions about the breadth and durability of the investment cycle.