Rupee Forecast Upgraded by BofA After US Trade Deal

The Indian rupee just posted its strongest single-day gain in over seven years, and Bank of America believes the rally has further to run. Following a new trade agreement with the U.S., the bank has upgraded its forecast and expects the rupee to strengthen significantly by the end of March.

Vikas Jain, Bank of America's head of India fixed income, currencies, and commodities trading, stated in an interview that the bank now projects the rupee will reach 88.60-89.00 against the U.S. dollar. This represents a 2% upward revision from its previous forecast of 90.50-91.00.

Rupee Surges as US Slashes Tariffs

The currency's sharp move was triggered by an announcement from U.S. President Donald Trump, who confirmed that tariffs on Indian goods would be reduced from 50% to 18%.

The market reacted immediately. The rupee surged 1.4% on Tuesday to 90.2650 from near-record lows, marking its biggest one-day jump since December 2018. By Wednesday, the currency was trading at 90.46.

Figure 1: The USD/INR exchange rate chart shows a sharp drop in early February 2026, marking the rupee's strong rally after the announcement of a new U.S.-India trade agreement.

Reversing Capital Outflows and Hedging Bets

Lingering uncertainty over the trade deal had been a major headwind for the rupee. In January alone, the currency weakened by 2% and hit a record low of 91.9875 as foreign investors pulled approximately $4 billion net from stock markets.

"Rupee was under pressure due to the outflows which we saw for the last month, and I think that should stop," Jain explained.

He added that a shift in exporter behavior could provide another layer of support. As the rupee fell, many exporters had reduced their currency hedging and held onto U.S. dollars overseas, expecting further weakness. With the outlook now improving, they are likely to increase hedging activity, which involves selling dollars and buying rupees.

RBI Expected to Take a Hands-Off Approach

As foreign capital potentially returns to India, Jain does not anticipate the Reserve Bank of India (RBI) will step in to aggressively buy U.S. dollars and build its foreign exchange reserves.

According to the latest data, the RBI sold nearly $30 billion between September and November. Despite this, India’s foreign exchange reserves reached a record high of $709 billion in the week ending January 23, boosted by rising gold prices and multiple FX swaps.

"I do not think RBI will be buying aggressively at the current level," Jain noted. "If the rupee stays around this level, the RBI might roll over their forward book and not intervene heavily."