The rupee showed its strongest weekly performance since March, falling just 0.7% in July. This was remarkable because Brent crude prices rose more than 20% during the same month, driven by renewed hostilities in the Middle East.
Analysts believe the RBI’s measures announced in June have shielded the rupee from further downside. Aditi Gupta of Bank of Baroda expects the currency to trade between 95.2 and 95.7 per dollar, while Dilip Parmar of HDFC Securities sees support at 94.8 and resistance around 95.6.
A weaker dollar and strong foreign inflows helped buoy the rupee. The dollar index fell 1.3% in July after comments from the US Federal Reserve Chair that cast doubt on future rate hikes. At the same time, foreign portfolio investor inflows rose to a 22‑month high, and debt inflows also improved.
In June, the RBI and the government launched steps to attract overseas inflows and manage risks from a widening current account deficit. These actions helped draw capital and calm market sentiment, benefiting the rupee.
Under the RBI’s Swap Facility, Indian banks mobilised $40.8 billion by July 31. The largest share came from Foreign Currency Non‑Resident (Bank) deposits at $36.7 billion, followed by Overseas Foreign Currency Borrowings at $2.5 billion and External Commercial Borrowings at $1.5 billion.
SBI Research now projects that FCNR(B) deposits could reach $65‑70 billion by the end of the scheme, higher than the earlier estimate of $40‑45 billion. Including OFCBs and ECBs, total inflows may reach $80‑85 billion.
India’s foreign exchange reserves stood at $682.4 billion as of July 24, enough to cover roughly ten months of imports. Analysts say this cushion gives the RBI ample firepower to handle future external shocks and support the rupee.
Whether the rupee can maintain its gains will also depend on the path of crude oil prices. A steady or falling oil price would ease pressure, while a sharp rise could test the currency’s resilience.
The options market indicates a softer outlook for rupee weakness. The 1‑month 25‑delta dollar‑rupee risk reversal dropped from 0.4 last month, showing reduced demand for options that bet on a weaker rupee.
Overall, the rupee’s recent stability reflects a mix of RBI policy, a softer dollar, and strong foreign inflows. Continued monitoring of oil prices and market sentiment will be key to predicting the rupee’s future trajectory.