MUFG’s Michael Wan assesses Reserve Bank of India’s (RBI) June 2026 FX measures and their impact on the Indian Rupee and USD/INR. He notes a large build-up of FX reserves and liquidity, and argues these measures have reduced tail risks of sharp INR depreciation. However, MUFG still expects USD/INR to rise gradually into 2027, with INR underperforming other Asian currencies.

RBI FX inflows reshape INR outlook

“Following RBI’s FX measures announced in June 2026 to support the Indian Rupee, the amount of Dollars attracted through the various facilities including FCNR(B) deposits now stands at a meaningful US$136bn as of 31 Aug, and likely still rising as we speak. With this huge deluge of money, it made sense in retrospect for RBI to have closed the FCNR(B) facility earlier than expected.”

“Note that there is no spot FX transaction unless RBI actively chooses to intervene in the INR FX market. As such it’s not surprising that USD/INR did not move much immediately in the first instance. These Dollar inflows do give RBI far bigger firepower to defend against INR weakness, but they also bring about their own set of challenges, namely INR liquidity management.”

“From an FX perspective, we continue to think that RBI’s measures have significantly reduced the left tail risk of sharp INR depreciation. Nonetheless, given still strong underlying Dollar demand including from gross FDI repatriation and a strong IPO issuance pipeline, we are still forecasting USD/INR to move higher directionally.”

“We are forecasting USD/INR at 95.50 by Dec 2026 and 96.50 by June 2027, implying a gradual depreciation in INR against the Dollar and a modest underperformance against other Asian currencies.”