USD/INR: Range-bound outlook and vulnerability to oil prices – MUFG

USD/INR Outlook: Analyst Insights and RBI Policy Direction

Michael Wan, Senior Currency Analyst at MUFG, anticipates that the USD/INR exchange rate will likely fluctuate within a stable range, with a primary expectation of movement between 94.00 and 95.00. Should oil prices climb, he foresees a broader band of 97.00 to 98.00. Wan also points out that the Reserve Bank of India (RBI) is expected to maintain current interest rates, while yields on Indian rupee assets may remain elevated due to ongoing domestic and global uncertainties.

RBI’s Approach and Indian Rupee Forecasts

Across Asia, the RBI has opted to keep its policy rate unchanged, maintaining a neutral stance through a unanimous decision. The central bank’s focus remains on stabilizing the rupee rather than prioritizing economic growth. Governor Malhotra emphasized the potential for higher inflation and slower growth, citing risks from the Iran conflict and volatile oil prices. Despite these challenges, he expressed confidence in India’s economic resilience and its ability to withstand external shocks. The RBI projects a slight moderation in growth, with GDP expected at 6.9% and inflation at 4.6% for fiscal year 2026/27, based on an average crude oil price of US$85 per barrel.

Regarding recent foreign exchange measures, Governor Malhotra described these actions as temporary, reaffirming the RBI’s commitment to advancing the rupee’s international role over the medium term. He clarified that these steps are intended to curb short-term speculation and address pressures from one-sided bets on rupee depreciation.

Exchange Rate Scenarios and Yield Outlook

• Under typical conditions, USD/INR is expected to move within the 94.00 to 95.00 range.
• If oil prices surge again, the pair could shift toward the 97.00 to 98.00 range.

While the RBI is likely to keep rates steady for now, persistent risks such as rising food prices, possible fiscal challenges, and weaker capital inflows may keep rupee yields elevated in the near future.

(This article was produced with the assistance of artificial intelligence and reviewed by an editor.)