Rupee Limits Decline Amid Oil Price Surge

Despite a sharp rise in global crude oil prices by over 20% in July, the Indian rupee managed to limit its decline thanks to strong capital inflows and proactive measures by the Reserve Bank of India (RBI). According to a report from Bank of Baroda (BoB), the RBI's intervention in the foreign exchange market helped stabilize the currency. The rupee depreciated by only 0.8% in July, supported by weaker US dollar, strong foreign capital inflows, and RBI intervention.

The BoB report noted that foreign portfolio investment (FPI) inflows rose to a 22-month high driven by stronger equity inflows, while the RBI's special measures attracted $40.8 billion in inflows. A decline in the US Dollar Index (DXY) by 1.3% during July also provided support to the rupee.

The report highlighted that India's external position remains comfortable despite a wider merchandise trade deficit, helped by strong remittances and healthy foreign exchange reserves. As of July 24, forex reserves stood at $682.4 billion, enough to cover about 10 months of imports. Looking ahead, BoB expects continued capital inflows and RBI policy measures to limit further weakness in the rupee.