Union Bank of India expects rupee to trade sideways in October

The Indian rupee is expected to trade sideways through October within a projected range of 95.30 to 96.80 against the US dollar, according to a report by Union Bank of India. High foreign exchange reserves and trade agreements are supporting the currency, even as rising global yields and foreign portfolio investor outflows create ongoing headwinds.

Reserves Hit Record Highs Amid FCNR(B) Inflows

Foreign exchange reserves climbed to an all-time high of USD 785.71 billion in September, bolstered by strong inflows under the Reserve Bank of India’s Foreign Currency Non-Resident (Bank) FCNR(B) deposit scheme, aninews.in reported. Those inflows helped the currency strengthen to 94.26 against the dollar during the first week of September. Regulatory measures introduced in June attracted USD 143.5 billion in total inflows by September 18, including approximately USD 133 billion through FCNR(B) deposits. The resulting foreign exchange reserves provided a comfortable import cover of roughly 11.2 months of goods.

Global Yields and Oil Prices Drive Depreciation Pressures

Despite record reserves, the rupee experienced renewed volatility and a slight depreciation bias throughout September, closing the month at 95.83 per dollar. Reuters reported that the currency dropped to its weakest level in two months, ending down 0.5% at 96.3150 per dollar on October 1 after breaching the key psychological barrier of 96. The sharp downward move stemmed from a deepening global bond rout and surging energy costs. The 10-year US Treasury yield rose to 5.34%, its highest level since 2002, while Brent crude oil prices reclaimed the USD 100-per-barrel mark after China suspended oil products exports. MUFG noted that India’s reliance on imports for roughly 90% of its crude requirements heavily increases its exposure to energy-price gains, while August inflation of 4.82% year-on-year moved above the Reserve Bank of India target of 4%.

Foreign Portfolio Outflows and Central Bank Intervention

Net withdrawals by foreign portfolio investors reached approximately USD 5.9 billion from Indian equities and bonds in September, offsetting earlier gains from July and August when overseas investors pumped a combined USD 7 billion into local markets. Union Bank of India noted that total foreign portfolio investor withdrawals for FY27 have exceeded USD 21 billion. To counter excessive rupee liquidity and manage volatility, the Reserve Bank of India carried out foreign exchange sell-buy operations in the forward market, pushing USD/INR forward premiums higher and deploying state-run banks to sell dollars near the 96 threshold.

Union Bank of India Expects October Rate Hike

Union Bank of India expects the central bank to implement a 25 basis point rate hike in October, followed by one or two additional hikes during the remainder of FY27. While global bond yields and capital outflows pose ongoing risks to the rupee outlook, trade agreements and stabilizing oil prices are expected to keep the currency contained within the 95.30 to 96.80 band during October. That performance compares with an overall currency depreciation of just 1.1% in the first half of FY27, a significant improvement from the 9.9% drop recorded in FY26 following regulatory interventions.