Crédit Agricole now expects RBI hikes from Q4 as expensive oil and weak monsoons threaten inflation, keeping USD/INR near its 96 forecast.
The US Dollar to Indian Rupee exchange rate closed Friday near 95.59, leaving Crédit Agricole’s second-half forecast of 96 just 0.4% above the market.
USD/INR gained about 1.2% over the week as the Rupee surrendered its early-September recovery.
The bigger change is in Indian interest rates: the bank has abandoned its forecast of no increases through 2026-27.
“We expect RBI to raise its repurchase rate from 5.25% to 5.75% by Q127, with the first hike occurring in Q426.”
Higher oil prices make that shift harder to avoid, according to senior FX strategist David Forrester.
Crude above $100 exceeds the RBI’s assumed $80-85 range, while weak monsoon rainfall threatens food supplies and stronger growth increases the risk that higher costs spread through the economy.
The pressure extends the oil-driven reversal in the Rupee we covered earlier this week.
India’s importers need Dollars to pay for dearer crude, while a weaker Rupee makes those purchases more expensive in local currency.
Higher rates may only contain Rupee losses
Friday’s US inflation release added another complication after Crédit Agricole’s note appeared.
Core CPI rose 0.3% in August after July’s 0.2%, strengthening the argument for a Fed hike, although annual core inflation eased to 2.4%.
If American rates rise too, an RBI increase may deliver less support through relative returns.
Crédit Agricole nevertheless sees policy support containing the damage:
“The 50bp rate increase combined with ongoing capital inflows from RBI’s ECB and OFCB programmes, plus record-level reserves to help the central bank lean against INR weakness, are expected to offset the drag on the INR from higher oil prices and weaker monsoons. We retain our H226 forecast for USD/INR at 96.00.”
Its longer-run valuation work puts USD/INR between 92.50 and 101.50, centred on 97, depending on how much incoming capital the RBI uses to unwind its forward positions.
That is a valuation range, not a forecast that 101.50 will trade.
The one-month data already record a high just above 96, making this a return towards a previously traded level.
Our reading is that the forecast’s harder test lies beyond another touch of 96: whether RBI action can contain further depreciation if expensive oil persists.
Our currency coverage draws on live market data, official economic releases and published bank research.
