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In the latest bank forecasts, the Indian rupee could recover against the US dollar over the coming months as foreign bond inflows return and domestic liquidity conditions improve, according to HSBC. The bank recommends selling the USD/INR exchange rate, arguing that recent policy measures should encourage overseas investment into India while the Reserve Bank of India is likely to resist a renewed rise towards recent highs.USD/INR was trading around 96.32 on Tuesday, having gained 1.75% during July and more than 7% since the beginning of the year.
The exchange rate recently reached a 2026 high around 97.12, placing the rupee close to levels that HSBC believes could trigger a more defensive response from policymakers.
Why Foreign Bond Inflows Could Support the Rupee HSBC says tax incentives for overseas bond investors included in the government's June foreign exchange package have already helped attract capital back into India.
Further inflows could follow if Bloomberg announces the inclusion of Indian debt in one of its bond indices.
Index inclusion would encourage international funds tracking the benchmark to increase their exposure to Indian government debt, generating additional demand for the rupee.
HSBC also notes that foreign investors have recently shifted from heavy equity selling to modest inflows, suggesting sentiment towards Indian assets may be stabilising.
How the FCNR Deposit Scheme Could Help Another potential source of support is the Foreign Currency Non-Resident deposit scheme.
HSBC says the initiative is beginning to gain traction as deposits are mobilised and exchanged with the Reserve Bank of India.
As more of these funds enter the domestic financial system, the resulting increase in rupee liquidity should have positive spillover effects for local sentiment, economic activity and Indian asset markets.
Combined with stronger foreign investment flows, this could help reverse some of the pressure that has driven USD/INR sharply higher during 2026.
Why the RBI May Defend the Rupee HSBC does not expect the Reserve Bank of India to sell substantial amounts of US dollars from its foreign exchange swap book.
Nevertheless, the bank believes officials are likely to remain defensive and prevent USD/INR from rising materially beyond current levels.
Allowing the pair to return towards 96-97 during the implementation of the government's currency package would raise questions over the effectiveness and cost of the measures.
This suggests the RBI may lean against further rupee weakness, particularly if USD/INR approaches its year-to-date high around 97.12.
What Could Push USD/INR Higher? HSBC acknowledges that the rupee still faces several risks.
India's dependence on imported energy means another rise in oil prices could increase demand for US dollars and widen the country's import bill.
Seasonal dividend outflows, renewed foreign selling of Indian equities and approaching non-deliverable forward maturities could also produce periods of rupee weakness.
The exchange rate has already risen from below 94.80 at the end of June to above 96.30, demonstrating that these risks remain significant.
What's the Forecast for the US Dollar versus the Indian Rupee? HSBC favours a lower USD/INR exchange rate and recommends selling the pair.
The bank expects returning foreign bond inflows, the FCNR deposit programme and resistance from the Reserve Bank of India to limit further gains in USD/INR.
While the pair may remain volatile around current levels, HSBC believes the balance of risks favours a stronger rupee rather than a sustained move beyond the recent 96-97 region.
USD/INR Forecast FAQIs HSBC bullish on the Indian rupee?
Yes. HSBC recommends selling USD/INR, which implies that it expects the rupee to strengthen against the US dollar.
What is the current USD/INR exchange rate?
USD/INR was trading around 96.32 on July 14. The pair was up approximately 1.75% for the month and 7.06% since the beginning of 2026.
Why does HSBC expect USD/INR to fall?
HSBC points to returning foreign bond investment, improving domestic liquidity and the likelihood that the Reserve Bank of India will resist a further rise in the exchange rate.
Could USD/INR rise above 97?
It remains possible if oil prices increase or foreign capital leaves Indian markets. However, HSBC expects the RBI to become increasingly defensive around the 96-97 region.
What are the main risks to the Indian rupee?
Higher oil prices, renewed equity outflows, seasonal dividend payments and non-deliverable forward maturities could all place fresh pressure on the Indian currency.