Rupee Strengthens by 47 Paise Amid Record FCNR Inflows Enhancing Forex Liquidity
Rupee strengthened by 47 paise to 94.26 against the US dollar in early trading on Thursday, bolstered by record foreign-currency deposit inflows that enhanced the country’s forex liquidity. The currency opened at 94.30 in the interbank foreign exchange market before climbing to 94.26. It had closed at 94.73 on Wednesday after a gain of 22 paise.
The surge in the rupee follows the Reserve Bank of India’s announcement that foreign currency non-resident (Bank) deposits had reached $127.226 billion as of August 31 under a special programme. When including overseas foreign-currency borrowings and external commercial borrowings, total inflows amounted to $136.377 billion. Forex traders noted that the rupee’s strength was supported by robust inflows and proactive intervention by the RBI, which helped mitigate the impact of rising crude oil prices and global yields.
Record FCNR(B) inflows strengthen RBI’s hand
The substantial inflow from FCNR(B) deposits has increased the liquidity available to the banking system, as banks can swap these deposits with the RBI. IFA Global indicated in a research note that this situation provides the RBI with greater flexibility in defending the rupee. However, it also presents a significant sterilisation challenge, as banking system liquidity surplus could rise to around Rs 10 lakh crore due to these swaps. The FCNR(B) deposits were mobilised under a special central-bank initiative aimed at enhancing India’s foreign-exchange liquidity.
Dollar, oil prices remain in focus
The dollar index was recorded at 99.43, down 0.16 percent, reflecting safe-haven demand amid renewed tensions between the US and Iran. Brent crude was trading 0.16 percent lower at $95.48 per barrel in futures trade, influenced by fears of disruptions in oil flows through the Strait of Hormuz. Despite these pressures, the rupee maintained its strength in early trading, supported by inflows and RBI intervention. Domestic equities also opened higher, with the BSE Sensex rising 221.17 points to 76,791.52, and Nifty gaining 59.55 points to trade at 23,974. Foreign institutional investors were net buyers of Indian equities on Wednesday, purchasing shares worth Rs 6,688.37 crore, according to exchange data.
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