Rupee vs Dollar: After a year marked by record lows, the Indian rupee may strengthen to 86 per US dollar by 2026, according to Bank of America Global Research. The projection challenges the widespread belief that the rupee will remain weak, presenting a contrarian outlook shaped by both global and domestic factors.
While the rupee has slipped amid global uncertainty and strong dollar demand, BofA argues that recent depreciation reflects temporary distortions rather than structural weakness. “Overall, we believe USD (US dollar) weakness next year would still support mild INR (Indian rupee) appreciation and that could pick-up pace around seasonally favourable 1Q for INR. We forecast INR to reach 86/USD by end-2026, in line with USD weakness next year.”
Rupee rate today
In early trades on Tuesday, the rupee slipped 10 paise to 90.15 against the US dollar, weighed down by strong dollar demand from companies, importers, and foreign portfolio investors. It had touched a record low of 90.25 last week.
Forex traders said participants are largely waiting for clearer signals from the US Federal Reserve before taking firm positions.
Why the rupee really fell
The rupee’s recent weakness carries the fingerprints of multiple global shocks, not a domestic unravelling.
According to BofA, capital flows shrank materially as foreign investors pulled back across emerging markets. Equity inflows slowed, and FDI moderation added further pressure. Meanwhile, the Reserve Bank of India found itself fighting a steeper battle than many realized—selling an estimated USD 65 billion in spot and forward markets to temper volatility.
This combination—weak inflows plus heavy intervention—tightened rupee liquidity and amplified downward pressure. What made it stand out was the timing: global risk sentiment deteriorated sharply just as US tariffs rose, global trade decelerated, and the dollar surged. Against this backdrop, the rupee’s fall looks more like collateral damage than contagion.
BofA stresses that domestic fundamentals remain broadly resilient. Growth has held up, inflation has cooled, and the current account is not under acute stress. Yet the currency weakened because global forces simply outweighed India’s internal strength. The firm explains that the currency reflected “weaker capital flows, lower net inflows and a negative sentiment impulse,” suggesting that the rupee’s recent lows say more about the world than about India.
Rebound coming? The case for rupee at 86/USD
If the past year was shaped by global turbulence, BofA believes 2026 will be shaped by global cooling, especially a slowdown in the US. A softer dollar, stabilizing global trade, and improved risk appetite form the backbone of their bullish rupee outlook. Once the tide turns, India is positioned to benefit more than most.
A critical anchor for the forecast is inflation. Commodity prices remain benign, and India’s inflation has dropped sharply, even touching unusually low readings in some months. The rupee’s purchasing power, therefore, is improving beneath the surface. When inflation differentials tilt in India’s favor, currencies tend to drift stronger over time. According to BofA, “the overshoot in rupee depreciation is unlikely to persist as fundamentals anchor the medium-term trajectory.”
Trade dynamics are also shifting quietly. Export volumes may not be surging yet, but import compression is already lifting the trade balance. With low commodity prices supporting the import bill, the current account has begun to improve. BofA notes that while weaker currencies often take time to translate into export gains, the impact on imports appears quicker in India’s case. The firm highlights that “the net effect of a weaker rupee is mildly positive for the current account, driven more by import effects than export acceleration.”
Put together, these forces—the global cycle, inflation, imports, sentiment—create a path for the rupee to appreciate in the coming years.
Risks that could delay the climb back
Still, the road to 86/USD is not guaranteed or linear. BofA acknowledges that global risk aversion could persist longer than expected. If capital flows remain muted or if oil prices spike, the rupee may face renewed pressure. The RBI’s intervention strategy also matters; its growing forward USD book could influence future liquidity conditions and currency volatility.
India’s integration with global markets is both a cushion and a vulnerability. Domestic investors have provided stability, yet global macro shocks can still trigger abrupt swings in portfolio flows. Even so, BofA insists the rupee’s troubles are cyclical, not structural. The currency may need time, but the underlying direction—once global conditions ease—remains upward.
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