The Reserve Bank of India (RBI) announced a series of measures during its 5 June 2026 monetary policy meeting aimed at supporting the Indian Rupee (INR) in the near term, according to MUFG’s Michael Wan [1]. These measures include the RBI fully subsidising the foreign exchange (FX) hedging costs for banks raising new 3-5 year Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits, as well as introducing a concessional FX swap facility to incentivise state-owned enterprises (PSUs) to raise external commercial borrowings (ECBs) [1].
Additionally, the Indian government has removed taxes on capital gains and interest on government securities for foreign investors, with the changes applied retrospectively from 1 April 2026. The list of government securities available for foreign investment has also been expanded [1]. MUFG’s preliminary estimates suggest these policies could generate around US$40 billion of inflows, with the potential for even greater inflows if India is included in the Bloomberg Global Aggregate Index as an indirect result [1].
In terms of market implications, MUFG has adjusted its forecasts, now expecting the USD/INR exchange rate to reach 94.00 by the September quarter of 2026, before rebounding towards 96.00 in the following year. INR yields are also expected to grind higher [1]. The combined impact of these measures has led MUFG to adopt a somewhat less negative outlook on the Indian Rupee, expressing reduced confidence that the INR will underperform going forward [1].
CONCLUSION
The RBI and government’s coordinated measures are expected to bring significant foreign inflows and provide near-term support for the Indian Rupee. MUFG has revised its outlook to be less negative on the INR, anticipating a stronger currency in the coming months. Market participants will be watching the effectiveness of these policies and any further developments regarding India’s potential inclusion in global bond indices.