Rupee Outlook FY27: MUFG Sees USD/INR 98-100 Risk Scenario

Introduction: MUFG flags renewed rupee pressure

MUFG Bank has warned that India may need to revisit measures used during the 2013 rupee episode if pressure on the currency persists. The call comes as the Indian rupee has weakened past the 95-per-dollar level and remains exposed to global energy risks linked to the Strait of Hormuz and the West Asia conflict. In its report, MUFG argues that the Reserve Bank of India (RBI) is likely to respond through a mix of intervention, policy signalling, and potentially steps aimed at improving foreign currency inflows. The bank also lays out a rate path that includes at least 50 basis points (bps) of hikes this fiscal year, with a higher terminal rate possible under adverse oil scenarios. The broader message is that even if oil prices stabilise, MUFG still expects the rupee to remain relatively weak versus the US dollar.

Where USD/INR stands now

The report context points to a sharp move in the currency market, with USD/INR weakening through the psychological 95 level. The rupee hit a record intraday low of 95.12 on Monday, according to the article, underscoring the intensity of the sell-off. A spot reference in the report text shows US$1 = INR 95.69. MUFG also notes that the Indian currency is down over 6% in 2025, linking the move to both global shocks and domestic fragility. While RBI intervention is seen as providing near-term support, MUFG suggests the currency remains capped by external pressures.

MUFG’s baseline vs risk forecasts for the rupee

MUFG’s baseline assumption is that conditions de-escalate, but even then it expects the rupee to weaken further. Under this baseline, MUFG sees USD/INR trading between 95.00 and 96.00, implying underperformance versus Asia and G10 currencies including the euro (EUR), Japanese yen (JPY), and offshore Chinese yuan (CNH). In more stressed outcomes, MUFG says USD/INR is likely to move towards 98.00, and that even 100.00 is “in sight” if the conflict prolongs or escalates. Separately, the article highlights an expectation of USD/INR at 97.00-97.50 by the close of H1FY27. The report frames these projections as a function of oil-linked risks, capital inflows, and the current account balance.

What MUFG sees as the key drivers

MUFG attributes the rupee’s weakness to a combination of weak capital inflows and a wider current account deficit as oil prices rise. It also flags the risk of energy supply disruption if conflict persists, particularly if the Strait of Hormuz remains closed. Beyond energy, MUFG adds weather and global rate risks to the mix, citing risks from a potentially weak Southwest Monsoon and a “Super El-Nino.” The report also notes uncertainty around further increases in US yields as another factor that could worsen the downside for INR. Taken together, these factors leave the rupee vulnerable across multiple scenarios rather than a single shock.

RBI policy path: rate hikes of 50 bps, and possibly more

MUFG expects the RBI to raise the repo rate by at least 50 bps in the current financial year, and the article specifies this could happen across the June and August meetings. Based on MUFG’s projection, a 50 bps increase would take the repo rate to 5.75%. In more adverse oil-price scenarios, MUFG sees deeper increases, with a terminal policy rate potentially rising to a range of 6.25% to 6.75%. The report also suggests that once year-on-year inflation moderates more durably, some reversal in rate hikes could follow in FY2027/28. The stated logic for hikes includes managing inflation expectations and improving relative returns, especially against a “challenging capital inflow picture.”

A nuance in MUFG’s view on using rates for currency defence

The article text includes two closely related ideas from MUFG’s framing. One strand says MUFG expects an “interest rate defence” for the rupee, with rate hikes partly aimed at shoring up INR via higher domestic and relative returns. Another strand says MUFG does not think the RBI would use the interest rate as a tool to address currency depreciation pressures. Read together, the signal is that MUFG sees rate hikes as primarily inflation and macro-stability oriented, while still acknowledging they can indirectly support the currency when INR weakness and external stress build.

2013-style measures: NRI deposits, LRS curbs, and gold restrictions

If pressure persists, MUFG suggests India may revisit measures associated with the 2013 episode. The steps mentioned include tapping non-resident Indian (NRI) deposits as a source of foreign currency inflows and imposing stricter limits under the Liberalised Remittance Scheme (LRS). The report also notes that restrictions on gold imports could ease pressure on INR, though it cautions that such measures would not remove the pressure completely. These tools are framed as balance-of-payments and demand-management levers rather than a permanent fix.

Oil scenarios and what they could mean for growth and inflation

MUFG ties the rupee outlook closely to oil price outcomes. In a best-case scenario described in the article, where the US-Israel war on Iran ends after March and oil prices fall back to pre-war levels of about $10 per barrel, the rupee is projected to move from 92 per dollar in March 2026 to 93.5 in December 2026. If oil prices stay around $100 per barrel, MUFG expects the rupee to close the year at about 95.5 to the dollar. If the conflict intensifies and oil rises to about $120 per barrel and stays there, MUFG sees the rupee at 97.5 to the dollar by December.

MUFG also quantifies macro sensitivity: it estimates every $10 per barrel increase in oil prices cuts India’s GDP growth by around 0.1-0.2 percentage points and raises inflation by around 0.2 percentage points. The report’s current GDP forecast for India is 7% for FY2026/27, but MUFG says that if oil rises above its baseline assumption of $10 per barrel to $100 per barrel on a sustained basis, growth would likely come in below 6.5%.

Near-term range: supported by RBI, capped by externals

MUFG expects the rupee to trade in a relatively narrow range in the near term, helped by RBI interventions. At the same time, it does not predict a sharp break in either direction, while warning that sustained deterioration in global conditions could test the limits of policy support. This framework matters for market participants because it combines two forces: policy actions that can smooth volatility and global drivers that can keep pressure elevated. For investors, the mix implies continued sensitivity to oil, US yields, and geopolitical headlines.

Key figures at a glance

Why the report matters for markets

For Indian markets, the report brings together currency levels, policy rates, and the oil-growth-inflation linkage in one framework. A weaker rupee can feed imported inflation pressures, especially via energy, even as higher rates can influence liquidity and borrowing costs. Measures like NRI deposit mobilisation or tighter LRS limits, if used, would also be closely watched for their impact on flows and sentiment. The emphasis on oil scenarios highlights why commodity moves can quickly become macro and market variables for India.

Conclusion

MUFG’s central message is that the rupee remains vulnerable even under de-escalation, and that risk scenarios could push USD/INR towards 98-100 if external stress persists. It expects RBI to raise the repo rate by at least 50 bps this fiscal year to 5.75%, with a higher terminal rate possible under adverse oil outcomes and potential reversals later in FY2027/28 if inflation cools. If pressure continues, MUFG sees room for 2013-style steps such as attracting NRI deposits, tightening LRS limits, and considering gold import restrictions. The next signals for markets are likely to come from the RBI’s June and August policy meetings and from how oil prices and geopolitics evolve.