MUMBAI: Even as the rupee continues to plumb new lows, having already crossed the 90.50-to-a-dollar mark, a Wall Street brokerage is bullish on the battered unit that has been the worst performing Asian currency so far and is on course to close the year second worst after the 2022 fall, is on course to claw back to a healthy 86 mark.
Bank of America Global Research sees the rupee strengthening to 86 by 2026, attributing the recent plunge to temporary factors rather than structural weakness such as global uncertainties and demand for the dollar.
The projection presents a contrarian outlook shaped by both global and domestic factors and challenges the widespread belief that the rupee will remain weak. This is also against the unofficial stance of the Reserve Bank that is more or less resigned to the fact that the unit’s real value is 90 or thereabout. The brokerage argues that recent depreciation reflects temporary distortions rather than structural weakness such as the rising current account deficit or the fund outflows, which has already crossed $18 billion so far this fiscal.
“Overall, we believe dollar weakness next year would still support a mild rupee appreciation and that could pick-up pace around seasonally favourable Q1. We forecast the rupee to reach 86 by the end of 2026, in line with the likely weakness of the dollar next year,” its analysts said in a note. The report further says that the rupee’s recent weakness carries the fingerprints of multiple global shocks, not a domestic unravelling. Capital flows shrank materially as foreign investors pulled back across emerging markets.
Equity inflows slowed, and FDI moderation added further pressure, it adds. Meanwhile, the Reserve Bank found itself fighting a steeper battle than many realized—selling an estimated $65 billion in spot and forward markets to temper volatility. This combination—weak inflows plus heavy intervention—tightened rupee liquidity and amplified downward pressure. What made it stand out is the timing: global risk sentiment deteriorated sharply just as US tariffs rose, global trade decelerated, and the dollar surged.
Against this backdrop, the rupee fall looks more like collateral damage than contagion. BofA further stresses that domestic fundamentals remain broadly resilient-growth has held up averaging at 8% in the first half, inflation has cooled and it printed the lowest on record at 0.25% in October, and the current account is not under acute stress, despite the rupee fall and massive jump in gold and silver imports, thanks to the massive spike in their prices which is to the tune of 65% and 90% respectively so far.
Yet the currency weakened because global forces simply outweighed the country’s internal strength.The rupee pain reflects “weaker capital flows, lower net inflows and a negative sentiment impulse,” it says suggesting the rupee’s recent lows say more about the world than about the country.If 2025 has been shaped by global turbulence, BofA believes the 2026 will be shaped by global cooling, especially a slowdown in the US. A softer dollar, stabilizing global trade, and improved risk appetite form the backbone of their bullish rupee outlook. Once the tide turns, the country is positioned to benefit more than most.
A critical anchor for its forecast is inflation. Commodity prices remain benign, and retail inflation has dropped sharply, even touching unusually low readings in some months. Rupee’s purchasing power, therefore, is improving beneath the surface. According to BofA, “the overshoot in rupee depreciation is unlikely to persist as fundamentals anchor the medium-term trajectory.”Trade dynamics are also shifting quietly. Export volumes may not be surging, but import compression is already lifting the trade balance. With low commodity prices supporting the import bill, the current account has begun to improve.
BofA notes that while weaker currencies often take time to translate into export gains, the impact on imports appears quicker in our case it says and notes that “the net effect of a weaker rupee is mildly positive for the current account, driven more by import effects than export acceleration. Put together, these forces—the global cycle, inflation, imports, sentiment—create a path for the rupee to appreciate in the coming years,” it notes. Still, the road to 86-a-dollar is not guaranteed or linear.
BofA acknowledges that global risk aversion can persist longer than expected. If capital flows remain muted or if oil prices spike, the rupee may face renewed pressure. RBI’s intervention strategy also matters; its growing forward dollar book could influence future liquidity conditions and currency volatility.The country’s integration with global markets is both a cushion and a vulnerability. Domestic investors have provided stability, yet global macro shocks can still trigger abrupt swings in portfolio flows. Even so, BofA insists the rupee’s troubles are cyclical, not structural. The currency may need time, but the underlying direction—once global conditions ease—remains upward.