The Indian Rupee is projected to trade broadly sideways and stabilize around INR95 to the US dollar by the close of 2026. This outlook, detailed in a recent report by BMI, a unit of Fitch Solutions, suggests that a mix of challenging global factors and domestic interventions will largely balance each other out.
Persistent Pressures on the Rupee
Several significant headwinds are expected to keep the rupee under pressure through fiscal year 2026/27. The ongoing US-Iran conflict is a primary concern, anticipated to widen India's current account deficit by 0.4 percentage points, reaching 1.3% of GDP in the new fiscal year. This is largely due to India's substantial reliance on energy imports, which constituted 22% of total imports in FY2025/26 and are forecast to rise further.
Beyond energy, the conflict also threatens remittance income from Gulf countries, which accounted for approximately 38% of India’s total remittances in 2025, or about 1.0% of GDP. Any disruption to Indian workers' incomes in the Gulf could further exacerbate the current account deficit.
Global Economic Headwinds and Portfolio Outflows
Heightened global uncertainty is another critical factor. While India's local policy uncertainty index showed improvement in March, possibly linked to an India-US trade deal signed in February, the global uncertainty index rose during the same period. This broader risk aversion towards emerging markets is expected to drive financial portfolio outflows, keeping the rupee under strain. March 2026 saw capital outflows of USD13.4 billion from India, marking the largest single-month outflow since the pandemic.
The outlook for US interest rates has also shifted. Rising energy prices pushed US inflation to 3.3% year-on-year in March. Consequently, the US Federal Reserve is now expected to implement only a 25 basis point policy rate cut in 2026, down from an earlier projection of 50 basis points, with risks leaning towards no cuts at all. This means interest rate differentials, which previously favored the rupee, may no longer provide the same support, while a stronger US dollar could persist for longer.
RBI Intervention and Supporting Factors
Despite these pressures, several factors are expected to mitigate significant rupee depreciation. Profit repatriation from India, which contributed significantly to outflows over the past two years, appears to have peaked in the third quarter of 2025 and has trended lower since. This slowdown is anticipated to ease some of the pressure on the currency.
Crucially, the Reserve Bank of India (RBI) is expected to continue its active intervention in the foreign exchange market. The rupee depreciated by 10% over the past 12 months. The RBI's past actions, such as during a comparable 13% decline between January and December 2022, involved aggressive intervention that saw foreign reserves fall by 13% to USD498 billion. With current reserves covering seven months of imports, the central bank is well-positioned to counteract sentiment-driven outflows and stabilize the rupee. Reports indicate the RBI spent USD12 billion defending the rupee in the week following the onset of the US-Iran conflict.
In conclusion, while the rupee faces considerable challenges from geopolitical tensions and global economic shifts, proactive central bank measures and a moderation in certain capital outflows are expected to help it maintain its value, trading around INR95 against the US dollar by the end of 2026.