Global investment bank UBS has issued a bearish forecast for the Indian rupee, projecting it to depreciate to 92 against the U.S. dollar by the end of March. This represents a significant shift from its earlier predictions and underscores the complex pressures facing the currency despite potential positive triggers like a trade deal.
From 87 to 92: A Sharp Revision in Forecast
The new target of 92 per dollar implies a depreciation of roughly 2% from the current levels near 90. This outlook is notably more pessimistic than the forward market rate of around 90.55 for March and marks a stark reversal from UBS's own November 2024 call of 87. The revision highlights the evolving challenges for the rupee as 2025 progresses.
Rohit Arora, Head of Asia FX & Rates Strategy at UBS, explained the rationale during a media conference call on Tuesday. While acknowledging that "a trade deal will help at the margin," Arora pointed to a more dominant factor likely to cap the rupee's strength: the Reserve Bank of India's (RBI) foreign exchange reserve management.
RBI's FX Reserve Replenishment: A Key Downward Pressure
Arora emphasized that the recent drawdown in the RBI's foreign exchange reserves will be a crucial element limiting any sustained recovery for the rupee. The central bank is expected to actively rebuild these reserves during periods of currency stability, a move that inherently involves buying U.S. dollars and selling rupees, thereby exerting downward pressure on the local currency.
Complicating matters is the RBI's substantial short dollar position in the forward market. While this strategy has provided immediate support to the rupee by alleviating selling pressure, it creates a future obligation for the RBI to purchase dollars. This requirement to buy dollars in the near future is anticipated to weigh on the rupee's value down the line.
Growth Concerns and Equity Outflows Drive Capital Account Pressure
Beyond trade and RBI actions, UBS identifies deeper issues affecting India's capital account. Arora argues that the pressure stems more from growth concerns than trade uncertainty. A significant factor has been the massive outflow from Indian equity markets, which accounted for much of the rupee's nearly 5% fall in 2025.
The bank points to a disconnect between robust real GDP growth and slower nominal growth figures, which have dampened earnings expectations. This, combined with relatively expensive equity valuations, contributed to record selling of Indian stocks by foreign investors last year. Lingering U.S. tariffs have added to the overall pressure on the currency.
In summary, UBS's forecast paints a picture where any potential boost from a U.S.-India trade deal announcement is likely to be offset by the RBI's imperative to rebuild its forex war chest and persistent concerns over capital flows driven by equity market dynamics and growth metrics.
