Rupee Exchange Rate Stuck as Dollar Inflows Absorbed by RBI Reserves

The Indian rupee's exchange rate is predicted to remain between Rs 94.5 and Rs 96 per US dollar in the short term, despite significant dollar inflows from FCNR deposits and external commercial borrowings (ECBs), according to a Bank of Baroda research report.

The report found that these inflows have not resulted in a similar increase in value because they have mostly been incorporated into the Reserve Bank of India's (RBI) foreign exchange reserves, rather than entering the market. This has constrained the effect of increased dollar inflows on the exchange rate, as the rupee remains affected by fundamentals, RBI intervention, and market sentiment.

The report analyzed monthly currency fluctuations from January 2022 to June 2026, factoring in alterations in forex reserves, RBI spot and forward market activities, foreign portfolio investor (FPI) movements, and the dollar-euro exchange rate. The results suggest that combining spot and forward transactions might play a larger part in managing currencies.