Rupee Trapped in Narrow Range as Dollar Inflows Fail to Boost Currency

The Indian rupee's exchange rate is likely to remain within a narrow range of ₹94.5-₹96 per US dollar in the near term, according to a report from Bank of Baroda. The report found that large dollar inflows through FCNR deposits and external commercial borrowings (ECBs) have failed to translate into a commensurate appreciation of the rupee.

The reason for this is that the funds received from these inflows have largely been added to the Reserve Bank of India's reserves, rather than being infused into the market. As a result, the rupee's movement has become increasingly influenced by a combination of fundamentals, RBI intervention, and market sentiment.

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 findings suggest that conducting both spot and forward market operations together could be more effective for currency management.

The rupee has depreciated by around 28% over the past four years, moving from an average of ₹74.44 per dollar in January 2022 to ₹95.47 in August 2026. In contrast, the dollar gained 2.4% against the euro over the same period.