Reflecting the buoyant sentiment triggered by a slew of measures announced by the government and the Reserve Bank of India (RBI) to attract foreign capital, the rupee recorded its biggest single-day gain in two months on Friday.
The domestic currency strengthened by 85 paise to close at 94.94 against the US dollar, after touching an intra-day high of 94.88. The rupee emerged as Asia’s best-performing currency on the day.
The rupee rose after FPIs bought bonds worth Rs 575 million on Friday. However, they continued to be net sellers in the equity market, with net sales of Rs 8,000 crore.
RBI and Government Strategy
Announcing the outcome of the Monetary Policy Committee meeting, RBI Governor Sanjay Malhotra unveiled several measures aimed at boosting dollar inflows. These included expanding the universe of government securities eligible under the Fully Accessible Route (FAR), introducing a concessional forex swap facility for overseas borrowings, covering the full hedging cost for FCNR(B) deposits, and restoring the time limit for realisation of export proceeds.
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Earlier in the day, the government exempted foreign investors from capital gains tax on investments in government securities.
Currency markets welcomed the announcements, with economists estimating that the measures could attract $40-50 billion in inflows.
“The announcements are positive for the rupee and sentiment has improved today (Friday). However, the gains could reverse if geopolitical tensions escalate,” said Madan Sabnavis, chief economist at Bank of Baroda.
He added that while the measures should bolster investor confidence, the rupee would remain sensitive to geopolitical developments and crude oil prices. “Further appreciation may be limited, though it could materialise if the anticipated $40-50 billion of inflows comes through in the coming months.” Sabnavis expects the rupee to trade in the 94.5-95.5 range in the near term.
Geopolitical Headwinds
The rupee has been under sustained pressure since the escalation of the West Asia conflict in late February, largely because of a sharp rise in crude oil prices. Brent crude surged as much as 60 per cent to touch $118 per barrel, while the rupee weakened to a record low of 96.97 against the dollar last week before recovering on the back of aggressive RBI intervention and some moderation in oil prices.
So far this calendar year, the rupee has depreciated 5.6 per cent. Over the past year, it has weakened 9.5 per cent.
Kunal Sodhani, treasury head at Shinhan Bank India, said the RBI’s package signals a clear preference for strengthening the external account through market-friendly capital inflow measures rather than relying solely on foreign-exchange intervention.
“If global financial conditions remain supportive, the cumulative impact could attract $20-40 billion of incremental foreign inflows over the next 12-18 months, providing meaningful support to the rupee, forex reserves and the government’s borrowing programme. The FCNR(B) swap window and FAR expansion are likely to deliver the largest and fastest inflows,” he said.
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Analysts cautioned that while the measures have eased pressure on the currency, the rupee’s ability to sustain current levels will depend on geopolitical developments and the actual scale of inflows generated.
“If the conflict de-escalates in the near term and global crude oil prices average around $90 per barrel in FY27, we expect the rupee to average 92-93 against the US dollar. However, if Brent crude averages closer to $100 per barrel, the rupee could remain around 94,” said Rajani Sinha, chief economist at CareEdge Ratings.
TOPICSrupeeRupee vs us dollarThis article was first uploaded on June six, twenty twenty-six, at six minutes past twelve in the am. © The Indian Express (P) Ltd