India’s recent surge in dollar inflows has yet to halt the rupee’s decline, as the Reserve Bank of India utilises the funds to bolster reserves rather than strengthen the currency, highlighting ongoing external pressure and cautious intervention strategies.
India’s recent dollar inflows have done little to arrest the rupee’s weakness, even after the Reserve Bank of India drew in tens of billions of dollars through special measures designed to shore up external liquidity. The currency has continued to hover around the 95-96 per dollar mark, with the central bank apparently using much of the foreign money to build reserves rather than to let the rupee strengthen sharply.
According to the RBI’s own disclosures, the swap-backed drive had raised $40.816 billion by July 31, including $36.725 billion through Foreign Currency Non-Resident, or FCNR(B), deposits. That was before later reporting suggested the total had climbed to nearly $72.85 billion by August 21, with the bulk still coming through FCNR(B) accounts and the rest through overseas foreign currency borrowings and external commercial borrowings.
The scheme was launched in June and offers banks a cheaper way to bring in foreign-currency deposits by reducing hedging costs. Reuters-style market reading suggests the RBI’s priority is not merely to lift the rupee in the short term, but to reinforce its ability to intervene if conditions deteriorate. That matters because India is still facing pressure from expensive crude imports, global risk aversion and uneven foreign portfolio flows.
The central bank’s caution is understandable. Brent was trading near $92 a barrel on August 25, while WTI was around $85, keeping import costs elevated and adding demand for dollars. Every rise in energy prices can make it harder for the rupee to sustain gains, even when foreign inflows are strong.
There are, however, some signs of support elsewhere. Foreign portfolio investors bought about $2.5 billion in Indian equity and debt in the first 10 days of July, including roughly $1.6 billion in shares, a reversal from earlier selling. Even so, analysts say the rupee is likely to need more than one-off official dollar mobilisation to stage a lasting recovery.
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