S&P Global Ratings expects the Indian rupee to strengthen modestly against the US dollar by the end of the current financial year, with the currency projected to settle around ₹93.5 per dollar by March 2027. The forecast comes at a time when the rupee is facing pressure from elevated energy prices, foreign capital outflows, inflation risks and uncertainty in global financial markets.
The ratings agency has pointed to measures taken by the Indian government and the Reserve Bank of India (RBI) to encourage foreign capital inflows as an important factor supporting the currency. S&P’s latest assessment suggests that, despite near-term external pressures, the rupee’s current valuation leaves room for some recovery.
S&P has also highlighted the broader challenges facing the Indian economy. It expects economic growth to moderate in FY27 amid higher energy costs, expectations of a weaker monsoon and slower global growth. At the same time, inflation is expected to rise, creating a more complicated environment for monetary policy.
Rupee forecast at ₹93.5 per dollar
S&P Global expects the rupee to remain under pressure in the near term but settle at approximately ₹93 per dollar by March 2027 in one of its latest macroeconomic assessments. Its sovereign-rating projections also put the year-end FY27 exchange rate at ₹93.5 per dollar.
In its June outlook, S&P had said the rupee was expected to average around ₹93.5 per dollar in FY27, compared with a closing level of approximately ₹94.66 per dollar at the time of the forecast. The agency attributed some of the currency’s support to steps taken by policymakers to attract foreign capital.
The distinction between an average exchange-rate forecast and a year-end forecast is important. A forecast of ₹93.5 does not mean the rupee will trade at exactly that level throughout the financial year. Currency markets can move significantly from day to day depending on crude oil prices, global interest rates, capital flows, geopolitical developments and domestic economic data.
S&P’s broader view is therefore one of moderate currency recovery rather than a straight-line appreciation.
Why the rupee is considered undervalued
The idea of rupee undervaluation is linked to the currency’s inflation-adjusted value against trading partners. One commonly used measure is the real effective exchange rate, or REER.
A currency can appear weak against the US dollar while simultaneously becoming cheaper in inflation-adjusted and trade-weighted terms. This can happen when domestic inflation remains relatively contained compared with other economies or when the nominal exchange rate depreciates more than underlying economic conditions would suggest.
Recent assessments of India’s currency valuation have pointed to significant weakness in the rupee’s trade-weighted valuation. The decline has been driven by factors including higher crude oil prices, foreign portfolio outflows and concerns about India’s external financing requirements.
This does not automatically mean the rupee must appreciate. A currency can remain undervalued for an extended period when external pressures remain strong. However, a lower valuation can provide a potential foundation for recovery if capital flows improve and major external risks ease.
For India, the relationship between crude oil prices and the rupee is particularly important because the country remains heavily dependent on imported energy. When international oil prices rise sharply, Indian importers need more dollars to pay for energy purchases. That can increase demand for the US currency and place pressure on the rupee.
Capital flows could provide support
Foreign capital flows are another major factor in the rupee outlook.
India’s financial markets depend on a combination of foreign direct investment, portfolio investment, external commercial borrowing and other sources of overseas capital. Stronger inflows increase the supply of foreign currency in the domestic market and can help reduce pressure on the rupee.
S&P has said that authorities have taken measures to encourage foreign capital inflows after the rise in the current account deficit and weakening of the rupee. According to the agency, these measures have helped strengthen the currency against the dollar to some extent.
The effectiveness of these measures will depend partly on global investor sentiment. Even when India’s domestic economic fundamentals remain relatively strong, international investors can reduce exposure to emerging markets when US yields rise, geopolitical risks increase or global risk appetite deteriorates.
That makes the rupee sensitive not only to developments within India but also to decisions made by major global central banks and movements in international financial markets.
Crude oil remains a major risk
One of the biggest risks to S&P’s currency outlook is the global energy market.
India is one of the world’s major oil importers. A sustained increase in crude prices raises the country’s import bill and can widen the current account deficit. It can also increase domestic inflation by raising transportation, manufacturing and energy costs.
S&P has warned that elevated energy prices could put pressure on India’s external accounts while also increasing inflation. Its assessment notes that higher import costs for petroleum, fertiliser and gas could weigh on the country’s import bill.
A prolonged energy shock could therefore work against rupee appreciation.
If crude prices remain elevated for an extended period, Indian companies and consumers would face higher energy costs while demand for dollars from importers could increase. At the same time, higher inflation could reduce the room available for monetary policy to support economic growth.
This creates a difficult balance for policymakers.
Inflation outlook adds uncertainty
S&P expects India’s consumer inflation to rise to around 5.1% in FY27, significantly above the exceptionally low average recorded during FY26. The agency has attributed the expected increase partly to higher energy costs and increases in administered fuel prices.
Higher inflation can influence the rupee through several channels.
If inflation rises substantially, the purchasing power of the domestic currency declines. Higher inflation can also affect interest-rate expectations and the attractiveness of Indian financial assets relative to those in other countries.
S&P expects the RBI to raise its policy repo rate by 25 basis points during the second half of FY27, although the central bank’s actual policy decisions will depend on incoming economic data and the balance between inflation and growth risks.
Interest-rate differentials are particularly important for currency markets because international investors compare returns available in different economies. If Indian interest rates become relatively more attractive, they can support capital inflows. Conversely, if global yields rise significantly, some capital can move toward dollar-denominated assets.
Economic growth remains relatively strong
Despite the pressure on the currency and the risks from energy markets, S&P’s outlook still places India’s economic growth at a relatively high level compared with many major economies.
The agency initially projected real GDP growth of 6.6% for FY27, down from 7.7% in FY26. It cited energy stress, the possibility of a below-normal monsoon and slower global growth as factors behind the moderation.
However, S&P subsequently raised its FY27 growth forecast to 7%, citing stronger-than-expected economic activity. That means the agency’s growth outlook has changed since the earlier 6.6% projection, illustrating why currency forecasts should be treated as estimates rather than fixed targets.
A resilient domestic economy can support the rupee by encouraging investment and maintaining demand for Indian financial assets. Strong domestic consumption and investment can also help offset some of the negative effects of weaker external demand.
Nevertheless, faster growth can also increase imports, particularly when domestic demand rises strongly. The ultimate impact on the currency therefore depends on the composition of growth and the resulting trade and capital-flow dynamics.
What a stronger rupee could mean for India
A move from around ₹94.7 per dollar toward ₹93.5 would represent a relatively modest appreciation, rather than a dramatic reversal in the currency’s longer-term trend.
For importers, even a modest appreciation can reduce the rupee cost of goods and commodities priced in dollars. Oil importers, electronics companies, pharmaceutical businesses that source inputs internationally and other dollar-dependent businesses can benefit when the domestic currency strengthens.
Consumers can also benefit indirectly if lower import costs reduce pressure on domestic prices.
However, the impact is not uniformly positive across the economy.
Exporters receive fewer rupees when they convert their dollar earnings into the domestic currency. Companies with significant overseas revenues can therefore see their reported rupee earnings affected when the rupee appreciates.
The actual impact depends on each company’s business model, the proportion of revenue earned overseas, the currency in which costs are incurred and the extent of hedging.
RBI’s role in currency stability
The RBI plays an important role in limiting excessive volatility in the foreign-exchange market.
The central bank does not target a particular rupee-dollar exchange rate in the way a fixed exchange-rate system would. Instead, it can intervene when market conditions become disorderly or volatility becomes unusually high.
S&P expects the RBI to continue using tools to contain extreme currency volatility. Its assessment also points to the central bank’s response to stress in financial and currency markets.
Foreign-exchange reserves provide the RBI with a significant policy tool. By buying or selling foreign currency when appropriate, the central bank can influence market liquidity and help smooth sharp movements.
However, intervention cannot permanently override underlying economic forces. If oil prices remain high, capital outflows accelerate or the US dollar strengthens substantially, the rupee can remain under pressure even when the central bank is active in the market.
Global interest rates will matter
The US dollar remains highly sensitive to expectations surrounding US monetary policy.
When US interest rates and Treasury yields rise, dollar assets can become more attractive to global investors. This can encourage capital to move toward the United States and place pressure on emerging-market currencies, including the rupee.
Conversely, expectations of lower US interest rates can reduce the relative attractiveness of dollar assets and potentially support emerging-market currencies.
For the rupee, this means that domestic policy alone cannot determine the exchange rate.
Global bond yields, US inflation, Federal Reserve policy, geopolitical risks and international investor sentiment will all remain important variables through FY27.
What could push the rupee away from ₹93.5?
Several factors could cause the rupee to trade materially away from S&P’s forecast.
A renewed spike in crude oil prices would be one of the clearest risks. Higher oil prices could widen India’s import bill and increase demand for dollars.
A sharp increase in foreign portfolio outflows could create another source of pressure. Investors often reduce exposure to emerging markets during periods of heightened global uncertainty.
A stronger-than-expected US dollar could also make it harder for the rupee to appreciate.
On the domestic side, unexpectedly high inflation, weaker economic growth, a poor monsoon or deterioration in India’s external balance could affect the currency outlook.
S&P has also warned that prolonged geopolitical conflict, higher global inflation, rising US yields and weaker capital flows could increase currency volatility.
What could support a stronger rupee?
The opposite set of developments could support the rupee.
Lower crude oil prices would reduce India’s import bill and ease pressure on the current account. Stronger foreign direct investment and portfolio inflows could increase the supply of dollars in domestic markets.
Improving global risk appetite could also encourage investors to allocate more capital to Indian equities and bonds.
A stable domestic economy, contained inflation and continued policy measures to attract foreign capital could further strengthen investor confidence.
If these factors develop together, the rupee could perform better than it would under a prolonged energy or geopolitical shock. However, exchange-rate forecasts remain sensitive to developments that can change quickly.
Outlook for the rupee
S&P Global’s ₹93.5-per-dollar projection represents a relatively moderate recovery from the levels seen when the forecast was issued. The forecast reflects a balance between two competing forces.
On one side are the factors supporting the currency: India’s relatively strong economic growth, policy measures aimed at attracting foreign capital and the possibility that the rupee’s valuation provides room for recovery.
On the other side are the risks: elevated energy prices, inflation, current-account pressures, global interest rates, geopolitical uncertainty and potentially volatile foreign capital flows.
The forecast therefore should not be interpreted as a guarantee that the rupee will reach ₹93.5 by March 2027. Currency markets can move sharply when economic or geopolitical conditions change.
For businesses and investors, the broader message is that the rupee may have room to recover if external pressures ease, but significant risks remain.
India’s dependence on imported energy makes the currency particularly sensitive to crude oil prices, while its increasingly integrated financial markets mean global capital flows can quickly influence exchange rates.
S&P’s outlook ultimately suggests that the rupee’s current weakness may not continue at the same pace indefinitely. At the same time, the path toward ₹93.5 per dollar is likely to remain uneven, with oil prices, inflation, capital flows, RBI policy and global dollar strength playing central roles.
As March 2027 approaches, these factors will determine whether the rupee moves broadly in line with S&P’s projection or takes a different path.
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