NEW DELHI, India — Foreign portfolio investors are playing an outsized role in day-to-day movements of the Indian rupee, particularly as the currency recently crossed the 91 mark against the U.S. dollar, according to a report released by Bank of Baroda on Wednesday.
The report said foreign portfolio investor (FPI) flows, spot market interventions by the Reserve Bank of India, and activity in the forward currency segment are among the most significant factors influencing short-term currency movements.
“However, frequent intervention through the sale and purchase of dollars tends to dilute the statistical relationship,” the bank noted, citing its analysis of monthly data.
In December, FPIs were net sellers on nine of the 11 trading days analyzed. Bank of Baroda said the rupee could remain volatile until a potential deal with the United States is finalized, possibly by March 2026, though it emphasized that this expectation is driven more by market sentiment than underlying economic fundamentals.
The report added that daily current-account flows, such as IT export receipts and remittances, as well as capital flows including foreign direct investment and external commercial borrowings, also influence the currency market. However, these flows are not captured on a daily basis, limiting their direct correlation with short-term rupee movements.
According to the bank, India’s external position “appears to be fairly steady,” with the current account largely under control. It said capital flows — particularly FPI activity — are likely to be the decisive factor in near-term currency trends, with market sentiment shaped by the “shadow of a deal” between India and the United States.
The report also noted that the trade deficit does not appear to have a significant impact on short-term fluctuations in the rupee.
Separately, another recent Bank of Baroda report projected that India’s retail inflation will remain well contained in the third quarter of FY26. Headline consumer price inflation is expected to average around 0.4%, slightly below the Reserve Bank of India’s projection of 0.6%.
The bank said easing food prices and stable core inflation have continued to provide relief to consumers, despite some recent sequential increases in vegetable prices. (Source: IANS)
