The Indian rupee surrendered early September gains amid rising crude oil prices, even as record foreign currency deposit inflows bolstered India’s forex reserves and liquidity, with underlying inflation showing signs of firming.
The Indian rupee gave back earlier September gains after a sharp rise in crude oil prices, even as the Reserve Bank of India’s monthly bulletin pointed to a strong but temporary boost from FCNR(B) deposit inflows. The central bank said the foreign-currency deposits helped the currency recover briefly in early September, only for those gains to fade later in the month as oil moved higher and pressure on India’s external account returned.
The RBI’s special swap window for FCNR(B) deposits drew a far larger response than initially expected, with commercial banks mobilising about $133 billion by the time the facility was closed on 31 August, a month ahead of schedule. RBI data cited by Moneycontrol showed that total inflows across the related swap windows for FCNR(B), overseas foreign currency borrowings and external commercial borrowings had reached $143.6 billion by 18 September, underlining the scale of the response from non-resident depositors and borrowers. Analysts at Société Générale said the inflows helped lift India’s foreign exchange reserves to a record $785.7 billion in early September, giving the RBI a larger buffer to manage volatility, even as higher oil prices and narrower yield spreads weighed on the rupee’s appeal.
The stronger foreign currency inflows also left the banking system flush with liquidity for much of August and into September, although the RBI bulletin said conditions eased later in the month as tax-related outflows and the central bank’s durable liquidity operations absorbed some of the surplus. Banks’ use of the liquidity adjustment facility moderated to Rs 4.27 trillion on Thursday, suggesting that surplus cash in the system remained sizeable but less abundant than at the height of the inflow.
On the inflation front, the bulletin said headline consumer price growth edged up to 4.8% in August, driven by food and beverages, while fuel and core prices also firmed. The RBI staff noted that core inflation excluding precious metals had risen from unusually low levels in recent months, a sign that underlying price pressures may be becoming a little firmer even as food remains the main swing factor in the inflation outlook.
The economic picture was otherwise described as resilient. The bulletin said India posted robust gross domestic product growth in the first quarter of 2026-27 and that high-frequency indicators through August continued to point to steady demand, with industry and services holding up despite external headwinds. It also said net foreign direct investment strengthened sharply in July to $7.4 billion, the highest in five years, helped by inflows into communication, financial and computer services, with Mauritius, the United Arab Emirates and the United States among the leading source countries.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
