UBS Investment Bank expects the Indian rupee to weaken to 92 per U.S. dollar by March, making the case that any relief from a potential U.S.–India trade deal announcement would likely be undermined by the central bank replenishing foreign exchange reserves.
From near 90 per dollar levels currently, UBS’s forecast implies a roughly 2% depreciation over three months, well beyond the March forward rate that’s near 90.55 and a marked change from its November 2024 call of 87.
While “a trade deal will help at the margin,” according to Rohit Arora, head of Asia FX & rates strategy at UBS, a key factor limiting any sustained rupee recovery will be the recent drawdown of the Reserve Bank of India’s foreign exchange reserves.
The RBI can be expected to restore those reserves in periods of stability, Arora said in a media conference call on Tuesday.
The central bank’s large short dollar position in the forward market — while alleviating immediate pressure on the local currency — creates a requirement to buy dollars in the near future, weighing on the rupee down the road.
A CAPITAL FLOW, GROWTH ISSUE
India’s equity outflows accounted for much of the rupee’s nearly 5% fall in 2025, with lingering U.S. tariffs adding to the pressure.
Arora argues that pressure on India’s capital account stems more from growth concerns than trade uncertainty, with relatively expensive equity valuations playing a key role.
Though India has reported robust real GDP growth, slower nominal growth figures have weighed on earnings expectations, contributing to record selling of Indian equities by foreign investors last year.
