Rupee Rangebound as Dollar Inflows Fail to Boost Currency

The Indian rupee may hover in the Rs 94.5-96 per US dollar range for the near term, according to a Bank of Baroda research report. Large dollar inflows through FCNR deposits and external commercial borrowings have failed to boost the currency's value as these funds have largely been added to the Reserve Bank of India's reserves.

The rupee has depreciated by around 28 per cent since January 2022, when it averaged Rs 74.44 per dollar. Over the same period, the dollar gained 2.4 per cent against the euro, while other major currencies like the yen, Indonesian rupiah, and South Korean won have also lost value.

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. The study found that RBI intervention through both spot and forward operations together had a significant relationship with rupee movements.

The findings suggest that conducting both spot and forward operations could be more effective for currency management. However, changes in forex reserves only explained 18 per cent of the variation in the rupee's value.