Rupee likely to trade in ₹94.5-96 range in near term as dollar inflows fail to lift currency: Report

Research from Bank of Baroda suggests the Indian rupee is likely to hover between ₹94.5 and ₹96 against the US dollar over the near term. This range is expected despite large dollar inflows through FCNR deposits and external commercial borrowings (ECBs) not leading to significant currency appreciation. The funds have mainly been added to the Reserve Bank of India's reserves rather than infused into the market.

The report indicates that the rupee's movement is influenced by a mix of fundamentals, RBI intervention, and market sentiment, making it hard to attribute currency changes to a single factor. While sharp appreciation of the rupee might have followed the increase in dollar inflows, this has been limited, as the inflows have been added to reserves rather than circulated in the market.

The rupee has depreciated about 28% over the past four years, falling from ₹74.44 per dollar in January 2022 to ₹95.47 in August 2026. During this period, the dollar increased by 2.4% against the euro, while other currencies like the yen, Indonesian rupiah, and South Korean won also showed depreciation. The analysis of monthly currency movements from January 2022 to June 2026 revealed that RBI intervention through spot and forward operations had a significant relationship with the rupee's movements, accounting for 34% of the explanatory power.

Combined, the two factors were more effective than when considered separately (25% for spot intervention and 19% for forward operations). RBI intervention with forex reserves had less impact, explaining only 18% of the variation. Foreign portfolio inflows were significant alone but lost significance when combined with other variables.

The report concludes that multiple factors drive exchange rates, and separating them statistically does not reveal a dominant variable.