The Indian rupee is expected to show more weakness going ahead into 2026, according to a report by MUFG, a global financial group.
The report expects the rupee to appreciate modestly above the 90 level in 2026, targeting 90.80 by the September 2026 quarter. “We have already been expecting Rs to weaken and underperform although we note FX outflow pressures have been more acute than we have anticipated thus far. Our forecasts also imply continued Rupee weakness against key currencies such as the Euro, Japanese yen and CNY (Chinese Yuan),” the report read.
It has also been asserted that higher import needs and soft net FDI may weigh on the Indian rupee. The rupee breached the 90 mark against the US dollar in early December, extending its depreciation run through sessions now, and in the process, hitting a fresh all-time low for the currency.
“Our FX forecasts reflect our expectation for a wider current account deficit of 1.5 per cent of GDP and soft net FDI flows. These should offset some improvement in portfolio inflows with our expectation of an eventual trade deal between US and India, where we assume tariffs will be lowered to 25 per cent from 50 per cent by early 2026,” the MUFG report read.
Against that backdrop, MUFG expects RBI to intervene to cap rupee depreciation actively. At the same time, it thinks the fundamentals ultimately imply some pressure for the Rupee to weaken, and as such for the RBI to eventually allow the Rupee to break above 90 over time.
“Our forecasts are certainly sensitive to tariff assumptions. If a trade deal between the US and India to lower tariffs is not reached, the bias would tilt towards further rupee weakness and more RBI rate cuts, even as India’s domestic economy should continue to cushion India’s overall GDP,” it noted.
“It’s important to emphasise we are not overly bearish on Rupee at current levels given cheaper foreign exchange valuations, coupled with stronger momentum for structural reforms which could over time unlock the binding constraints to growth. We have already seen India’s government accelerate reforms such as simplification of the GST and consolidation of labour codes, policy moves which probably would not have been possible without the external shock from the 50 per cent tariffs. With the momentum on reforms picking up, coupled with recent wins on state elections by the incumbent government, we think the foreign exchange volume can remain reasonably contained unlike in past cycles.” ANI
