Why the USD/INR May Hold Near 90 Through FY26 As Fed Split Signals Easing Slowdown
The US Federal Reserve’s latest 25-basis-point rate cut has set the stage for a complex global monetary backdrop, but its implications for India are expected to be relatively stable, according to analysis from YES Bank’s Economics Research team. “For India, we think that the sharpest pressure for the INR is over as we expect gold imports as also non-oil non-gold imports to moderate over the remaining part of the year,” the report noted.
The report highlights that the Fed’s December policy vote was highly divided, with six members even preferring a pause. Projections for 2026 also show significant uncertainty. This internal fracture, combined with shifting US labour-market data, suggests that the bar for further Fed rate cuts remains high. Despite the softer dollar after the cut, the report emphasises that currency movements in 2026 will be driven more by relative economic growth and fiscal fundamentals than by a coordinated global easing cycle.
For India, this environment is expected to reduce strain on the rupee. YES Bank expects imports of gold and non-oil, non-gold items to moderate in the coming months. The report also notes that foreign portfolio investors may increase inflows as the USD/INR stabilises near 90.00. “Foreign inflows could also increase as FPIs may be more comfortable in bringing in flows around the USD/INR levels of 90.00,” it adds. Additionally, repatriation flows in Q4 are likely to support the currency. The bank projects the USD/INR to trade between 89.75 and 90.50, with a strong likelihood of ending close to 90.00 by March 2026.
On the domestic bond front, Indian yields have shown a negative bias after the RBI held policy rates steady. Markets do not expect further rate action from the central bank, with liquidity support via OMO purchases likely to play a key stabilising role. With the next MPC meeting slated after the Union Budget, attention will shift to elevated redemption and borrowing requirements for FY27. According to the report, 10-year G-sec yields are unlikely to fall sustainably below 6.50 per cent and may end FY26 in the 6.45–6.55 per cent range.
Overall, while the Fed’s move signals the nearing end of the global easing cycle, its impact on India is expected to be moderate, with a stable currency outlook and steady bond-market dynamics in the months ahead.
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