As the Indian rupee fell below the 88 mark against the US dollar amidst tariff concerns and FII outflows, Reserve Bank of India is likely to intervene to manage excessive volatility, a report said on Wednesday. CareEdge Ratings, in a report, maintained its FY26-end USD/INR forecast at 85–87, supported by a soft dollar, a firm yuan, India’s manageable current account deficit, and the prospect of a US–India trade deal.
“India’s forex reserves remain healthy at around $703 billion, near an all-time high, giving the RBI scope to intervene in the currency market and curb currency volatility if needed,” the ratings agency suggested. Analysts indicated that short-term pressure on the rupee is expected to continue owing to US tariffs, increased H-1B visa fees, and ongoing foreign portfolio investor outflows.
CareEdge ratings said that the increased FPI selling this year could be due to concerns of 50 per cent tariffs remaining in place, acting as headwinds on India’s FY26 growth, taking it to around 6 per cent. Gross FDI inflows reached approximately $25.2 billion in Q1 FY26, while net FDI decreased to around $4.9 billion due to increased outward investments by Indian firms.
The dollar index has weakened approximately 10 per cent year-to-date due to US trade policy uncertainty, fiscal concerns, alongside expectations of additional Federal Reserve cuts following a reduction in September. The yuan has appreciated approximately 2.5 per cent year-to-date, eliminating a source of competitive pressure on Rupee observed in first trade war in 2018-19.
“On the domestic front, we do not expect an RBI rate cut in the October MPC meeting. However, if high US tariffs persist, FY26 GDP growth could slow to around 6 per cent. This, coupled with potential downward pressure on inflation from GST rationalisation, may create room for further rate cuts later, likely another 25 bps,” the report said.
As the US Fed is expected to cut rates more aggressively than the RBI, the interest rate differential could widen in favour of the rupee, providing some support, it added.
