India’s $127 bln NRI deposits arm RBI with more firepower, setting rupee up for rally

India's foreign-currency non-resident bank deposits surged to $127 billion on Thursday, surpassing expectations and strengthening the rupee. This massive inflow bolstered the Reserve Bank of India's ability to support the currency, with traders predicting the rupee could open at 94.30 to 94.35 against the US dollar. The Reserve Bank of India reported a $136.38 billion foreign-currency mobilisation, including $3.89 billion from non-resident deposits, $5.26 billion from external commercial borrowings, and $5.26 billion from overseas foreign-currency borrowings.

The actual figure exceeded the anticipated $100 billion, according to a currency trader at a bank. The RBI's actions, such as dollar sales and pushing the rupee higher, amplified the impact of these inflows. The rupee may also benefit from Asian currencies' strength and a potential pullback in the dollar index, which has dropped below 99.50 due to a Japanese yen rally.

Market participants are now watching for US economic data and Federal Reserve clues to determine the central bank's policy path and potential rate hike.