New Delhi: The Indian Rupee is expected to weaken in 2026, according to a report released by global financial services firm MUFG. While the currency may show periods of short-term stability, the report cautioned that several domestic and international factors could place sustained pressure on the rupee over the medium term.
MUFG has projected that the rupee could trade at around ₹90.80 per US dollar in 2026, representing a marginal depreciation from current levels. The report noted that although India’s underlying economic fundamentals remain relatively resilient, external challenges are likely to influence currency movements in the coming years.
According to the report, capital outflows are expected to be one of the key factors weighing on the rupee. Volatility in global financial markets and shifts in investor sentiment could impact foreign portfolio investment flows into India. Any sustained reduction in capital inflows could add pressure to the currency.
The report also highlighted concerns over a widening current account deficit. Rising import bills, particularly for energy, combined with pressure on exports, are likely to affect India’s external balance. Higher import costs increase demand for foreign currency, which can contribute to depreciation of the rupee.
Global economic uncertainty was identified as another major factor influencing the rupee’s outlook. MUFG pointed out that fluctuating global interest rates, especially in advanced economies, could impact capital movements and currency valuations. Changes in monetary policy by major central banks may affect emerging market currencies, including the rupee.
Trade imbalances and volatility in foreign portfolio investment were also cited as risks. The report noted that sudden shifts in global risk appetite could lead to uneven capital flows, making the rupee vulnerable to external shocks. These dynamics, MUFG said, could limit the currency’s ability to strengthen significantly.
The rupee has already shown signs of weakness in recent months. In early December, it breached the 90-mark against the US dollar, extending its depreciation trend and touching record lows. Analysts have attributed this movement to a combination of global and domestic factors affecting demand and supply in the foreign exchange market.
Rising import costs, particularly for crude oil and other energy-related commodities, have been cited as a key contributor to the rupee’s weakness. At the same time, challenges faced by exporters amid global slowdown concerns have added pressure to the currency.
The report also offered insights into the likely approach of the Reserve Bank of India (RBI) towards managing the rupee. According to MUFG, the RBI is unlikely to engage in aggressive intervention to halt the currency’s depreciation. Instead, the central bank is expected to allow a gradual adjustment in the exchange rate while stepping in to prevent excessive volatility.
This approach, the report suggested, reflects a preference for maintaining orderly market conditions rather than defending a specific currency level. By allowing controlled movement, the RBI aims to balance external pressures while preserving foreign exchange reserves.
MUFG noted that sustained pressure on the rupee could continue unless there is a marked improvement in global economic conditions. Stronger capital inflows and a stabilisation in global markets would be necessary to provide meaningful support to the currency.
The report concluded that while India’s economic fundamentals provide some buffer, external headwinds are likely to dominate the rupee’s trajectory in 2026. Currency movements, it said, will largely depend on global interest rate trends, investor behaviour and the evolution of trade and capital flows.
