We anticipate the USD/INR pair to move towards a range of 93-94, with the possibility of undershooting below 93 determined by the extent of capital flows that come in. This implies that current spot levels offer a good opportunity to hedge for exporters for near-term exposures. That said, we expect that beyond September – once the capital flow effect moderates, the pair could again trend up and see a year-end range of 95-96. At this stage, we estimate that cumulative flows on account of the measures announced could range between USD 50-70 billion. Note: These are only initial estimates (based on past and recent trends, assessment of current global conditions) and actual numbers may see a variation. We would get a sense of the momentum in flows over the coming weeks as it gets reflected in FX reserves and domestic liquidity conditions.
Rupee: We see the possibility of the USD/INR pair moving towards 93 levels over the coming months.
Historical comparison: Between April 2013 and 3rd September 2013, USD/INR had depreciated by ~22%. However, during the second half the year (Sep 2013 to March 2014), when the RBI announced measures including FCNR (B) dollar swap window to attract dollar flows, USD/INR appreciated by ~11%.
That said, we must caution that uncertain global conditions (rising yields and elevated oil prices) along with the RBI’s large, short forward dollar book (at $95 billion as of April 2026) could limit a sustained upside for the rupee this time around. RBI’s forward book size is expected to rise by the amount of the capital inflow (due to the FX swap window) – raising the longer duration maturities of the forward book (currently at USD 50.7 billion as of April 2026). At the same time, the dollar flow could be used for reducing the forward book maturities up to 1 year – which stand at USD 44.6 bn as of April 2026. This essentially, implies that while the short forward book might reduce, the longer duration may rise – leaving the overall size of the forward book still being considerable.
Therefore, if there is an absolute reduction in the short forward dollar book (which we think is likely) – the upside for the rupee could be limited. We expect the pair to consequently settle closer to 95-96 levels by fiscal year-end after a period of some gains.
This forecast also assumes that the US Fed turns hawkish post the US Mid-term elections in November (possibility of rate hike cycle beginning in early 2027) while other G7 central banks like the ECB begin their rate hiking cycles in Q2/Q3 2026 itself. We also assume a 50bps rate increase by the RBI starting Q3 FY27.
From a balance of payment perspective, we estimate CAD/GDP at 2% of GDP – USD 83 bn -- assuming oil price average of $95 pbl for FY27. This forecast assumes that the Strait of Hormuz opens over the coming weeks. Our CAD forecast currently faces upside risks depending on the duration of the conflict.
We estimate that the capital inflow on account of the measures announced could garner anywhere between USD 50-70 billion on a gross basis. This could significantly reduce the balance of payments deficit (to USD 13 billion), although this deficit could be further lower (or turn surplus) if the capital inflows due to these measures are at the higher end of our range. For BoP calculations, apart from these capital inflows, we are also assuming FDI net flows of USD 10 billion and FII net flows of USD 5 billion (assuming positive sentiment effective once conflict is over).
The FCNR B scheme with RBI bearing the complete hedging cost (close to 3.5%) could attract flows between USD 30-35 billion. While currently global rates are elevated, with US 10-year yield at 4.5% and 2-year at 4.15%, with RBI bearing the full FX risk, banks are expected to pass on the benefit to consumers to attract NRI deposits. Currently the deposit rate offered on FCNR (B) stands at sub-4% for 3–5-year deposits. To recall, in 2013, a similar scheme had led to an increase of USD 26.6 bn in FCNR B flows. Over the last three years, the total NRI deposits have stood at USD 14-16 billion (including FCNR B, NRE, NRO etc.).
The FX concessional swap window at 1.5% for ECB borrowings by PSUs and with that facility also extended to AD banks could increase ECB flows over the coming months. The concessional swap facility would partly offset the cost of fully hedged ECBs. Net ECB flows stood at USD 16 billion in FY25 and USD 11 billion in FY26. Under the new facility, we estimate the net ECB flows could rise to a range of USD 15-20 billion.
These estimates are only indicative at this stage and could be influenced by the following factors: 1) Extent of FDI and FII flows in FY27 contingent on the duration and extent of conflict, 2) If recent tax changes by the government on FPI debt pave the way for the inclusion in the Bloomberg Aggregate Index (which could eventually lead to a total flow of USD 20-25 billion), 3) Upside- If the conflict ends over the coming weeks, we could see some easing in global yields leading to a higher capital inflow, 4) risk – if conflict prolongs and oil prices rise sharply followed by a further rise in global yields could weigh on the extent of capital inflows.