Rupee to hold 89-90 vs USD by FY27 on softer dollar, manageable CAD

The report highlighted that the USD/INR strengthened from recent lows of around 92 to approximately 90.6 following the trade deal with the United States and the Free Trade Agreement (FTA) with the European Union.

This recovery reflects improving sentiment and easing pressure on the domestic currency.

It stated, "We maintain our FY27-end USD/INR forecast at 89-90."

However, despite the recent recovery, the rupee remains about 0.5 per cent weaker against the dollar compared to its level a month ago. This indicates that while the rupee has regained some ground, it continues to face external pressures.

The report noted that easing trade uncertainties are likely to support a revival in foreign investment inflows. Improved investor confidence and rising inflows are expected to provide greater stability to the rupee in the coming period.

The report added that stronger inflows and reduced volatility could allow the Reserve Bank of India (RBI) to scale back its foreign exchange interventions.

The central bank had intensified its interventions over the past few months to manage currency fluctuations and ensure stability in the foreign exchange market.

At the same time, weakness in the dollar index has continued amid rising expectations of rate cuts by the US Federal Reserve. Inflation in the United States slowed sharply in January to 2.4 per cent from 2.7 per cent in the previous two months, contributing to the weakening of the dollar.

A softer dollar environment is generally supportive of emerging market currencies, including the Indian rupee, as it reduces depreciation pressure and improves overall currency stability.

Based on these factors, the report maintained its forecast that the USD/INR will remain in the range of 89 to 90 by the end of FY27.

The outlook is because of the expectations of a softer dollar and a manageable current account deficit, which are likely to help maintain stability in the rupee over the medium term.

- ANI