Rupee to Hit ₹97/$ by FY27 Amid Global Risks: BMI Forecast

The Indian rupee is projected to significantly weaken against the US dollar over the coming fiscal years, according to BMI, a Fitch Solutions Company. The firm forecasts the rupee will reach ₹97 per US dollar by the end of FY2026-27, further depreciating to ₹99 per dollar by the close of FY2027-28.

Key Projections

• Current Rupee Rate: ₹95.4 per US dollar
• Projected FY2026-27 End: ₹97 per US dollar
• Projected FY2027-28 End: ₹99 per US dollar

Understanding the Depreciation Drivers

This expected decline from the current rate of ₹95.4 is primarily influenced by a combination of global and domestic factors. BMI highlights three significant pressures contributing to the rupee’s vulnerability.

The rupee faces downward pressure from elevated energy prices and a general increase in global risk aversion. India’s substantial reliance on imported energy, covering approximately 90% of its oil requirements, makes it highly susceptible to fluctuations in Brent crude prices.

The ongoing US-Iran conflict exacerbates these energy costs and fuels a broader risk-off sentiment in global markets. India’s energy subsidies further intensify the impact of higher oil prices by disincentivizing reduced consumption among consumers.

Interest Rate Differentials at Play

A less favorable differential in interest rates between India and the United States also contributes to the rupee’s weakening. BMI projects specific movements in policy rates for both nations over the next few years.

• The US Federal Reserve is expected to maintain its policy rate at 3.75% throughout 2026.
• A 50 basis point cut by the US Fed is anticipated in 2027.
• Conversely, the Reserve Bank of India (RBI) is forecasted to raise rates by 25 basis points in February 2027.
• A second RBI hike is expected to be pushed into FY2027-28.

Additional Headwinds and Investor Concerns

Beyond these core economic factors, additional risks could further challenge the rupee’s stability. A potential Super El Nino weather pattern carries a two-thirds probability of occurrence.

Such a weather event could lead to reduced agricultural exports and an increased demand for food imports, thereby adding to the rupee’s depreciation. Investor concerns regarding India’s long-term growth prospects are also contributing to this outlook.

Specifically, the potential disruptive impact of artificial intelligence on key services export industries, such as software engineering and call centers, is a growing worry. Early indicators of this pressure include reported hiring freezes and fewer entry-level positions within these crucial sectors.

Government and RBI Efforts to Stabilize

Despite these challenges, recent measures implemented by the Indian government and the RBI are designed to help stabilize the rupee. These initiatives aim to mitigate a sharper depreciation through various financial mechanisms.

• Tax reductions for foreign investors have been introduced.
• Foreign access to India’s bond markets has been expanded.
• Subsidized foreign-exchange hedging facilities are now available.

These actions have already attracted approximately USD 40 billion in foreign portfolio investment inflows, effectively reversing previous outflows. However, BMI does not expect Indian authorities to actively strengthen the rupee through direct market intervention.

Instead, the focus will likely remain on managing excessive currency volatility rather than targeting a specific exchange rate. India’s substantial services surplus and consistent remittance inflows are also expected to provide a crucial buffer.

These natural inflows are anticipated to offset a portion of the country’s large merchandise trade deficit. This consistent inward flow provides an underlying resilience against external pressures on the currency.