The USD/INR pair is expected to trade in a narrow band in the coming months, with MUFG senior currency analyst Michael Wan projecting a base range of 94.00–95.00. A sustained rise in global oil prices could push the pair into a wider 97.00–98.00 range, he warned.
Policy rates likely steady, yield curve seen stable
Wan expects the Reserve Bank of India (RBI) to keep policy rates unchanged, pointing to firm domestic yields amid both local and global risks. The structure of rupee yields is seen staying broadly stable, with markets focused on:
- food price pressures
- fiscal balance concerns
- the trajectory of capital flows
RBI holds steady amid inflation and growth concerns
At its latest meeting, the RBI left the policy rate unchanged and kept a neutral stance through a unanimous decision. Governor Malhotra highlighted a difficult trade-off between:
- inflation risks, particularly from energy
- slowing growth linked to the conflict in Iran and oil market volatility
Updated growth and inflation outlook
The central bank’s new projections for fiscal year 2026–27 are:
- GDP growth: 6.9%
- inflation: 4.6%
These forecasts assume an average global oil price of US$85 per barrel and reflect a cautious outlook in what officials describe as a steady but uncertain external environment.
FX steps seen as temporary, rupee internationalisation a medium-term goal
Malhotra characterised recent foreign exchange measures as temporary tools aimed at curbing short-term speculation in the rupee. Over the medium term, the RBI’s stated goal is to strengthen the currency’s role in international trade, even as it manages near-term volatility.
Oil prices key to upper end of USD/INR range
If oil prices climb further, Wan believes USD/INR could test the upper bound of the projected wider 97.00–98.00 range. Despite this risk, domestic interest rate conditions are expected to remain largely unchanged in the near term.
Debt inflows rise as equities see outflows
The expected stability in USD/INR is underpinned by recent capital flow trends:
- over US$4.2 billion flowed into India’s debt markets last month
- around US$3.6 billion exited equities over the same period
This split suggests growing preference for India’s yield profile on government securities over an equity market that some global analysts now describe as fully valued.
Strong dollar and record FX reserves shape trading band
External pressures are also influencing the rupee’s defined trading channel. The US dollar index (DXY) has been consistently holding above 104 against a basket of major currencies, adding to the headwinds for emerging market currencies.
At the same time, the RBI’s capacity to lean against excessive rupee volatility is supported by record foreign exchange reserves of more than US$645 billion, giving the central bank substantial scope for intervention if needed.
Oil remains key swing factor for rupee
Energy costs remain a central risk. Brent crude futures are currently trading near US$91 per barrel, a level that keeps alive the possibility of USD/INR pushing toward the 97.00–98.00 zone outlined in Wan’s wider-range scenario.
What traders will watch next
For traders active in markets sensitive to global liquidity and risk appetite, the main signals to track in the coming weeks include:
- the direction and size of cross-border portfolio flows
- any sharp moves in the US dollar index
These indicators often act as early warnings of shifts in confidence that can quickly filter through to the rupee, yields, and broader market conditions.
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