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Capital inflows and proactive measures by the Reserve Bank of India (RBI) helped limit the Indian rupee's decline in July, even as global crude oil prices surged more than 20 per cent amid escalating geopolitical tensions in West Asia, according to a Bank of Baroda (BoB) research report.
The report noted that the rupee depreciated by only 0.8 per cent in July, despite a sharp rise in oil prices, supported by a weaker US dollar, strong foreign capital inflows and RBI intervention in the foreign exchange market. "INR traded cautiously in Jul'26 amidst an escalation in geo-political conflict. It depreciated by only 0.8% in the month even as oil prices increased by over 20% in the month," the report said. According to the report, foreign portfolio investment (FPI) inflows rose to a 22-month high, driven by stronger equity inflows, while RBI's special measures attracted USD 40.8 billion in inflows. It also cited reports indicating that the central bank stepped up intervention in the forex market to support the currency. BoB said a decline in the US Dollar Index (DXY) by 1.3 per cent during July also provided support to the rupee, even as higher crude oil prices weighed on the domestic currency. It added that FPI inflows reached USD 4.2 billion during the month, led by equity investments, while debt inflows also improved. The report said India's external position remains comfortable despite a wider merchandise trade deficit, helped by strong remittances, a higher services surplus and healthy foreign exchange reserves. It noted that forex reserves stood at USD 682.4 billion as of July 24, enough to cover about 10 months of imports. Looking ahead, BoB said uncertainty arising from the conflict in West Asia is likely to keep oil prices elevated and maintain volatility in the currency market. However, continued capital inflows and RBI's policy measures are expected to limit further weakness in the rupee. "Overall, we expect INR to trade in the range of 95.25-95.75/$ in the near-term," the report said. (ANI)
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