Dollar-Rupee Rebounds Towards 95 as Rupee Recovery Divides Banks
UBS expects the Indian Rupee to weaken against the US Dollar in 2027, while Crédit Agricole sees recovery if overseas rate and oil pressures ease.
The US Dollar recovered towards 95 Indian Rupees on Friday.
USD/INR stood at 94.9614 at 20:43 BST, up 0.46% on the day but still 1.59% lower over five days.
UBS expects the exchange rate to reach 97 by September 2027, reversing that recent improvement in the Rupee.
Crédit Agricole projects 92 for the same month, leaving a five-Rupee gap between the banks’ expectations of what one US Dollar will buy.
Both foresee some renewed Rupee weakness before the end of 2026, but their paths then diverge as Crédit Agricole anticipates a recovery and UBS projects gradual depreciation through next year.
A sustained Rupee recovery would require external pressures to ease beyond the immediate support provided by the Reserve Bank of India.
Crédit Agricole’s own assessment is cautious about relying on intervention, despite its more optimistic currency forecast.
David Forrester, the bank’s senior FX strategist, wrote earlier this week: “The INR’s problems are primarily structural rather than speculative and include rising oil prices, Fed rate hikes and the sharp sell-off in USTs eroding Indian government bonds’ rate advantage and investor portfolio outflows as foreign investors remain bearish on Indian equity markets, despite 7-8% real GDP growth.”
India’s trade figures offer some relief
The latest official September trade figures, released after that assessment, give a more mixed picture than an uninterrupted deterioration in India’s external position.
Goods imports exceeded exports by $30.21bn, although that was narrower than the $33bn deficit a year earlier.
An estimated services surplus reduced the combined goods-and-services deficit to $13.30bn, also slightly smaller than a year before.
These are trade figures, rather than a complete measure of the current account, and September’s services numbers remain estimates.
Export earnings provide a counterweight to import-related Dollar demand, although purchases abroad still exceeded goods-and-services receipts in September.
The RBI’s special Dollar window for state-owned oil companies moves some of their purchases away from ordinary market trading, while tighter derivatives rules target speculative activity.
Forrester cautions: “Importantly, earlier clamp-downs on speculative activity have already reduced this activity and so RBI is addressing an increasingly smaller part of the INR’s problems.”
That limitation also ran through Exchange Rates UK’s earlier examination of the oil-company facility, which distinguished calmer trading from a lasting reduction in pressure on the Rupee.
Why Crédit Agricole still expects a stronger Indian Rupee
The bank’s recovery case relies on a less demanding overseas backdrop, including a smaller rise in US interest rates than markets had anticipated.
That assessment preceded the US inflation release and subsequent swings in Treasury yields.
Forrester wrote: “The larger potential surprise is on the US side, where our US economist expects the Fed to skip hiking at its October meeting and anticipates only two more 25bp rate hikes, to take the Fed Funds rate to a peak of 4.50%.”
Friday’s broader Crédit Agricole analysis continued to describe expected Fed tightening as excessive, even after the inflation figures.
For the Indian Rupee, lower-than-expected US yields would help preserve the relative income available from Indian bonds, reducing one reason for investors to favour Dollar assets.
Another Indian rate rise would offer less of a surprise under Crédit Agricole’s assumptions.
Forrester says: “We expect another two 25bp rate hikes by RBI, taking the Repurchase rate to 6.00% and modestly into restrictive territory. This outlook is about in line with the market pricing following the RBI meeting outcome and so would not move the INR much if realised.”
The RBI’s October policy decision raised its repo rate to 5.50% and left subsequent action dependent on growth and inflation, rather than promising an uninterrupted series of increases.
Oil supplies a second condition for recovery, with Crédit Agricole expecting some relief for India’s import bill.
Forrester wrote earlier this week: “Our oil analyst forecasts Brent to average USD95/bl in the coming six months as the US and Iran continue their “cold war” via economic blockades. Such an outcome would be modestly positive for the INR.”
Crédit Agricole plans to reassess its longer-term Rupee forecasts after the US midterm elections, when it expects greater clarity on the direction of US policy towards Iran and the implications for oil prices.
Capital flows present a harder question for the bullish Rupee case.
Forrester wrote: “Despite 7-8% real GDP growth, investors remain bearish Indian equity markets. Portfolio managers continue to see India as behind the curve on AI and even subject to downside risks to growth as the technology reduces the demand for the country’s IT and business consultancy exports.”
He also identified a potential offset: “The only positives on this front are that India’s IT and business consultancy exports remain strong and that some investment managers are looking at Indian equities as a hedge against the bursting of the AI bubble.”
USD/INR Exchange Rate FAQ
What is UBS’s Indian Rupee forecast?
UBS projects USD/INR at 97 by September 2027, implying a weaker Rupee than Friday’s rate near 94.96.
Why does Crédit Agricole expect a different outcome?
Its forecast of 92 for the same month relies on less US rate tightening than previously priced and some relief from oil costs, alongside India’s policy support.
