Rupee Expected to Stay in Rs. 94.5-96 Range Amid Dollar Inflows

A Bank of Baroda research report has predicted that the Indian rupee will likely remain in the Rs. 94.5-96 per US dollar range in the near term, despite large dollar inflows through FCNR deposits and external commercial borrowings (ECBs). These inflows have failed to translate into commensurate appreciation as they have largely been added to the Reserve Bank of India's reserves.

The report analyzed monthly currency movements from January 2022 to June 2026 using changes in forex reserves, RBI spot and forward market operations, FPI flows, and the dollar-euro exchange rate. It found that RBI intervention through both spot and forward operations had a significant relationship with rupee movements, explaining up to 34% of the variation.

However, the report noted that a sharp rise in reserves following dollar inflows may not lead to a major change in the exchange rate, as changes in forex reserves only explained 18% of the variation. The analysis also found that FPI flows were significant when considered alone but lost significance when combined with other variables.