Indian Rupee Forecast: BofA Sees USD/INR at 99 Despite Recovery
The Indian Rupee is recovering, but BofA and MUFG expect renewed losses as RBI support leaves oil costs and underlying US Dollar demand unresolved.
The Dollar-to-Rupee exchange rate fell to 94.72 early on Tuesday, down 0.29% on the day as the Indian currency extended its recovery.
The stronger Rupee is moving away from both Bank of America and MUFG’s projections for renewed depreciation in 2027, despite central-bank measures that have curbed immediate demand for Dollars.
BofA forecasts USD/INR at 99 in September 2027, against MUFG’s 97.50 for the same quarter.
That puts BofA’s projection roughly 4.5% above Tuesday’s rate.
Both banks’ forecasts predate the latest US waiver of Russia-related sanctions and tariffs.
The waiver offers India relief from an additional trade threat, while the Reserve Bank of India’s currency measures have already helped to reverse some Rupee weakness.
Neither development necessarily resolves the financing pressures behind the banks’ forecasts.
Oil importers get relief, but Dollar demand can return
BofA’s Abhay Gupta identifies a cost to the RBI’s success in reducing immediate demand for Dollars: some of that demand may simply have been postponed.
The measures divert state-owned oil importers’ currency purchases away from the market, raise the cost of importers’ forward hedging and signal tighter liquidity conditions.
That can make the Rupee less vulnerable to concentrated buying of Dollars, but protecting the exchange rate uses resources the central bank may later need to replenish.
Gupta writes: “However, these steps would still weigh on the RBI’s net FX reserves which would need to be re-built in the future.”
“Thus, it does little more than provide a near-term respite for INR while increasing the medium-term challenges for the RBI, in our view. Similarly, discouraging importers’ forward hedging would create pent-up demand for hedging as and when these measures are reversed.”
Hedging allows an importer to secure an exchange rate for a future payment.
Making it more expensive can discourage that transaction today without removing the underlying need to pay an overseas supplier later.
Gupta nevertheless favours a dedicated facility for oil imports: “FX window for oil import demand is a more effective usage of RBI’s reserves, rather than broad-based market intervention. Diverting oil importer demand would be the most impactful (assuming take-up is higher than previously announced USD credit line in Apr’26) as it reduces the effective CA gap for market to less than USD 10Bn in 4Q (which will still need RBI smoothing in the market).”
The current-account financing gap left for the market would shrink, but only if importers make sufficient use of the facility.
The US waiver changes the risks around the forecasts
President Donald Trump’s executive order waives new duties and sanctions under the Graham Act, including additional tariffs aimed at major buyers of Russian energy.
The order leaves earlier sanctions under existing executive orders intact, and the waivers can be reconsidered by the US administration.
For India, the pause eases the threat of a further 100% US tariff linked to purchases of Russian oil, as The Indian Express reports.
Our reading is that this reduces an external risk to the Rupee, but does not by itself establish that India’s energy import bill will fall enough to reverse the banks’ currency outlooks.
Before the waiver, MUFG’s Michael Wan identified several sources of demand for foreign currency:
“A wider current-account deficit, elevated oil prices and continued gross FDI repatriation linked to India’s strong IPO pipeline remain sources of dollar demand.”
Foreign investors converting proceeds from Indian investments into overseas currency can put pressure on the Rupee even when domestic growth is healthy.
That problem was already evident in MUFG’s earlier assessment of persistent Dollar demand despite larger RBI reserves.
The latest measures have had a more immediate effect on trading, according to Wan:
“The steps reduced speculative NDF demand and spot dollar buying, helping reverse part of the earlier rupee weakness, although the adjustment came with higher hedging costs and thinner liquidity in onshore forwards.”
NDFs are non-deliverable forward contracts used to trade currencies offshore, while onshore forwards allow participants to agree a future exchange rate in India.
Higher rates may already be reflected in market prices
The RBI has raised its repo rate to 5.50%, but MUFG questions whether the central bank will deliver all the tightening investors have anticipated.
Wan says: “We think the RBI has turned hawkish, but not enough to validate the tightening already priced into INR rates.”
“We maintain one further 25bp hike in February 2027, taking the repo rate to 5.75%, with some risk that it eventually reaches 6.00%.”
BofA sees a greater risk that defending the currency will ultimately require a more aggressive hiking cycle.
Gupta writes: “With domestic pressures (strong growth, higher inflation) well-aligned towards need for tighter monetary policy, these measures raise the risks of RBI undertaking more aggressive hiking cycle to lean-on rate-differentials to support INR.”
For MUFG, cheaper Rupee valuations and softer short-term US yields offer support alongside RBI intervention.
Its forecast nevertheless allows renewed depreciation without a disorderly sell-off: “For FX, we continue to see USD/INR moving gradually higher over time, but with the topside capped by RBI intervention.”
USD/INR Exchange Rate FAQ
What do BofA and MUFG forecast for USD/INR?
BofA projects 99 for September 2027, while MUFG expects 97.50 in the third quarter. Both imply a weaker Rupee than Tuesday’s 94.72 rate.
Why can the Rupee weaken despite RBI support?
Intervention can reduce immediate market pressure, but oil payments and investors repatriating funds still create demand for Dollars. BofA also warns that deferred hedging demand can return.
Does the US waiver remove all Russia-related sanctions?
No. The order waives new measures under the Graham Act while leaving earlier sanctions under existing executive orders intact.
