Economic experts predict that the Indian rupee is likely to strengthen against the US dollar in the first half of fiscal year 2027. This positive outlook is attributed to reduced current account pressures and improved financial inflows, keeping the rupee trading within a range of 93-95.
However, concerns arise if the US Federal Reserve proceeds with an anticipated 50 basis-point rate hike in the second half of FY27. Such a move could reignite pressure on emerging market currencies, including the Indian rupee, potentially limiting its appreciation.
Recent policy interventions, including measures by the Reserve Bank of India and tax relaxations for government bonds, have played a crucial role in stabilizing the foreign exchange market. Notably, the tax-free status granted to foreign portfolio investors (FPIs) investing in India’s G-Sec under the Income-Tax Ordinance of June 5, 2026, has attracted significant flows into the Indian debt market.
Moreover, there has been a substantial increase in FPI inflows into Indian debt through the Foreign Account Tax Compliance Act (FAR) route following the RBI’s policy changes. The total inflows, including the potential inclusion of India in the Global Bloomberg Bond Index, are estimated to reach $80-85 billion.
Looking ahead, while risks related to current account funding for FY27 are diminishing, uncertainties loom over sustainable foreign capital inflows in FY28. Factors such as a shrinking global foreign direct investment (FDI) landscape and tightening US monetary policies could impact FPI equity flows into India, especially with a focus on tech investments in the US.
The forecast also anticipates three 25 basis-point rate hikes by the US Federal Reserve in September 2026, December 2026, and January 2027, indicating potential challenges for FPI inflows into Indian equities amid evolving global economic dynamics.
