Reserve Bank of India’s (RBI) pro-growth stance is likely to attract renewed equity inflows, says BofA

BofA Research expects the Indian rupee to strengthen to 84 per US dollar by December 2025 from a prior forecast of 87, joining peers in turning more bullish on the currency amid improving capital inflows and trade engagement.

BofA expects the rupee to track broader weakness in the US dollar and be supported by stable domestic fundamentals, it said on Thursday, adding that the Reserve Bank of India’s (RBI) pro-growth stance is likely to attract renewed equity inflows.

The RBI cut rates in February and April this year to support growth, with traders pricing in a near-certain 25 basis-point reduction at the June meeting.

A potential revival in economic activity could boost foreign interest in Indian stocks. After pulling out $13.5 billion from equities in the January-March period, foreign investors have already pumped in $2.5 billion so far this quarter. An improvement in India’s terms of trade, aided by lower oil prices, is expected to keep the current account deficit within a manageable range. Additionally, while India was flagged by the US as a potential target for higher reciprocal tariffs, ongoing efforts to secure a trade agreement have helped ease those concerns to an extent, BofA said.

“These factors are likely to support INR strength through the remainder of the year.”

BofA’s forecast aligns with projections from Goldman Sachs and MUFG Bank.

MUFG, which had earlier forecast the rupee at 87.5, revised its target about three weeks ago to 84. Around the same time, ANZ upgraded its December forecast for the rupee to 86 from earlier expectations of 88.5.

“We see a mild appreciation bias for the rupee driven by dollar softness, an improving domestic growth outlook, the return of capital flows, and lower commodity prices,” said Sakshi Gupta, principal economist at HDFC Bank.

Published on May 22, 2025