Economy

Rupee Projected to Trade in Range of 85.5-87.5 per Dollar in FY26

By Senjuti BhattacharyaApril 2, 2025315 Comments3 Mins Read

The Indian rupee displayed relative stability in FY25 when compared to other global currencies, despite the pressure exerted by a stronger US dollar on major currency pairs, according to a report released on Wednesday.

However, towards the latter part of the fiscal year, a shift in dollar strength combined with increased Foreign Portfolio Investment (FPI) inflows into Indian debt markets helped the rupee rally, enabling the domestic currency to regain as much as 2.4 per cent in just one month, as highlighted in the report by Bank of Baroda (BoB).

Looking ahead, the upcoming fiscal year is expected to be marked by periods of volatility, largely driven by uncertainty surrounding US trade policies. The trajectory of US tariff decisions will be closely monitored as it will have a significant impact on the US Federal Reserve’s rate actions, which in turn will influence the movement of the dollar.

“On the domestic front, the rupee is likely to find support from an improvement in growth prospects, lower inflation levels, and stable external deficits. Overall, we expect the rupee to trade in the range of 85.5-87.5 per dollar in FY26,” said Aditi Gupta, Economist at Bank of Baroda.

The past fiscal year, FY25, was eventful for the rupee, which experienced alternating phases of stability, depreciation, and consolidation.

During the first seven months of the year, the rupee remained largely rangebound, showing minimal movement. However, the latter half of the fiscal period was marked by more pronounced fluctuations in the currency’s value, reflecting changes in global economic conditions.

One of the most influential events impacting the global forex market was the outcome of the US presidential elections in November. The victory of Donald Trump introduced an element of uncertainty concerning US economic growth and inflation trends, prompting a reevaluation of market expectations regarding Federal Reserve rate cuts. This shift significantly strengthened the demand for the dollar.

“The rupee’s movement reflected these broader trends. From March to October, the currency depreciated by only 0.8 per cent, with average daily annualized volatility hitting multi-year lows of just 1.5 per cent,” Gupta added.

While strong domestic economic fundamentals contributed to the rupee’s stability in the early part of the fiscal year, shifting global factors played a crucial role in determining the currency’s trajectory later in the year.

Moving forward, US tariff policies will be a major determinant of currency movements worldwide.

“Following initial disruptions, global markets have largely adjusted to US tariff decisions, but this balance will be put to the test once again as new policies unfold,” the report stated.

On the domestic front, economic conditions remain favorable for the rupee, which is expected to remain resilient despite mounting external challenges. A stable macroeconomic environment, coupled with improving growth indicators, should provide support to the currency as it navigates an increasingly complex global landscape.

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