Mumbai, Sep 3: The Indian rupee strengthened sharply against the US dollar on Thursday, supported by a surge in foreign currency inflows and improved confidence in the country’s external financial position.
The rupee opened at Rs 94.30 per US dollar, gaining 67 paise from the previous close of Rs 94.97. The move pushed the domestic currency to a two-month high.
The rally followed the Reserve Bank of India’s latest data showing that banks mobilised $127.23 billion through FCNR(B) deposits under its special foreign exchange swap facility. Including external commercial borrowings and overseas foreign currency borrowings, total inflows reached $136.38 billion by August 31.
The strong response to the RBI facility has significantly improved foreign currency liquidity in the banking system. The large inflows also provide the central bank with greater flexibility to manage volatility in the rupee and strengthen the country’s external buffers.
FCNR(B) deposits accounted for more than 93 per cent of the total funds mobilised under the facility, highlighting the strong participation in the scheme. The RBI had introduced the special dollar-rupee swap facility in June to attract foreign currency into the Indian banking system.
The response was stronger than initially expected, prompting the RBI to close the fresh FCNR(B) mobilisation window on August 31 instead of the earlier September 30 deadline. Swaps against eligible deposits already mobilised will continue to be available under the facility until September 11.
The stronger rupee comes as a positive development for the Indian economy, particularly because a firmer domestic currency can help reduce the rupee cost of imports. However, global factors continue to pose risks.
Crude oil prices, US bond yields and geopolitical tensions remain important factors for the currency market. Higher oil prices can increase India’s import bill and put pressure on the rupee, while stronger US yields can support the dollar.
For now, the sizeable foreign currency inflows have provided a much-needed cushion for the rupee and strengthened market confidence. Investors will continue to track global oil prices, dollar movements and further currency flows to assess whether the rupee can sustain its recent gains.