MUFG’s Michael Wan analyses new Reserve Bank of India and government measures that could generate around US$40bn of inflows and partially plug India’s FY2026/27 balance of payments gap. He turns somewhat less negative on the Indian Rupee, sees USD/INR near 94.00 by the September quarter before a rebound towards 96.00 next year, and expects INR yields to grind higher.

RBI inflows temper Rupee downside risks

“RBI announced a slew of measures to help shore up the Indian Rupee during its 5 June 2026 monetary policy meeting. These policies include RBI fully subsidising the FX hedging costs of banks raising fresh 3-5 year FCNR(B) deposits and a concessional FX swap facility to incentivise the raising of ECBs by state-owned enterprises (PSUs). In addition, the government has removed taxes on capital gains and interest on government securities for foreign investors, applied retrospectively from 1 April 2026, while expanding the list of government securities available for investment.”

“Net-net our preliminary estimates suggest that there could be around US$40bn of inflows from these policies, and more so if India were to be included in the Bloomberg Global Agg Index as an indirect result.”

“We tentatively adjust our forecasts for INR stronger near-term and see USD/INR at 94.00 by the September quarter before rebounding towards the 96.00 handle in the next calendar year.”

“With the combined impact of these measures from RBI’s policy meeting, we are now somewhat less negative on the Indian Rupee than we were before, and are less confident that INR will underperform moving forward.”

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