Foreign inflows unlikely to lift rupee significantly in coming months

Foreign investors turned ‌net buyers of Indian equities in July for the first time in 5 months, while the RBI's measures to attract foreign exchange, announced in June, have drawn more than $40 bn

The Indian rupee will trade in a narrow range over the next few months and recover only slightly against ​the US dollar despite a recent pickup in foreign capital ​inflows, according to a Reuters poll of foreign exchange strategists.

Foreign investors turned ‌net buyers of Indian equities in July for the first time in five months, while the Reserve Bank of India's measures to attract foreign exchange, announced in June, have drawn more than $40 billion. Yet, the rupee is down about 6 per cent so far this year.

Some analysts said the inflows were unlikely to lead to lasting gains for the rupee because the RBI has sizeable dollar obligations from past interventions in the foreign exchange market.

 

The median forecast of 36 strategists polled between July 31 and August 5 showed the rupee largely holding near ‌current levels, at 95.25 per dollar in three months and at the end of January 2027, before weakening to 95.95 in a year.

"Inflows will be enough to fund the RBI's requirements rather than be used for currency appreciation. I expect more sideways movement for the rupee rather than any upside," said Anitha Rangan, chief economist at RBL Bank.

The RBI's measures are expected to attract around $50 billion by the end ​of the year, according to median estimates from a separate Reuters survey conducted last month.

Meanwhile, analysts ‌said the central bank's forward dollar commitments of more than $100 billion as of June would limit its ability to support the rupee.

While central banks in ​some emerging ‌and developed economies have raised interest rates to support their currencies and curb imported ‌inflation, the RBI has so far refrained from using monetary policy to counter the rupee's weakness.

Sixty-eight of 72 economists in a separate Reuters poll expected the RBI ‌to ​leave the repo ​rate unchanged at 5.25 per cent on Wednesday. Survey medians also showed interest rates remaining on hold at least until early 2027.