The Indian rupee could strengthen to ₹95 against the US dollar over the coming months if Brent crude remains below $100 per barrel and foreign inflows continue, according to Kotak Securities. Anindya Banerjee, Head of Research – Currency, Commodity and Interest Rate Derivatives at Kotak Securities, said the rupee could appreciate further to ₹93 in an aggressive scenario if the Reserve Bank of India (RBI) allows Foreign Currency Non-Resident (Bank) (FCNR(B)) inflows to fully reach the spot market. The currency strategist noted that lower oil prices, foreign portfolio investment inflows and FCNR(B) deposits are creating conditions for the rupee to appreciate, with foreign portfolio investors already bringing in around $4.5 billion during July.
The Reserve Bank of India likely intervened in the foreign exchange market on Friday as the rupee neared its all-time low, with Brent crude oil prices rising past $100 per barrel amid intensifying conflict in West Asia. According to Reuters, five traders confirmed the central bank's intervention, with state-run banks selling dollars shortly before the market opened at 9 a.m. IST, likely on behalf of the RBI. The rupee avoided a record low, ending at 96.5625 per U.S. dollar, little changed on the day. As per The Economic Times, the selling continued through most of the session, pulling the rupee higher before the intervention. Developments in the Middle East pointed to worsening supply disruptions, with U.S. President Donald Trump promising "major military punishment" for Iran and its Houthi allies after Yemeni fighters struck two Saudi oil tankers in the Red Sea. India, which imports nearly 90% of its crude needs, is particularly vulnerable to oil price shocks as they can fan inflation, strain external balances and weigh on the rupee by boosting demand for dollars.
The RBI's package of measures aimed at supporting the rupee attracted more than $20.7 billion as of July 17, with $17.41 billion coming through foreign currency non-resident (Bank) deposits mobilised by banks and the remainder through overseas foreign currency borrowings and external commercial borrowings. According to Kotak Securities, the FCNR(B) deposit mobilisation has already matched the level seen during the 2013 scheme, with Banerjee now expecting inflows to exceed $50 billion before the RBI's September 30 deadline. As per BofA Global Research, the flow of deposits has been somewhat backloaded, as more banks launched their mobilisation drives only from mid-July, with the central bank appearing well on course to raise more than $60 billion by the end of the programme. The 15-month dollar-rupee forward premium declined 7 paisa to INR 3.47, indicating successful intervention measures.
Exporters have been delaying dollar conversions in anticipation of better exchange rates, while importers have been increasing hedging activity, according to Kotak Securities. If stronger inflows are allowed into the market, exporters may accelerate conversions to avoid missing a stronger rupee. The 15-month dollar-rupee forward premium declined 7 paisa to INR 3.47, indicating successful intervention measures. The central bank's gold holdings have remained unchanged since May 22 at 880.52 metric tonnes, while the bulletin noted that foreign inflows into bond markets rose in June and have remained positive in July, with equity markets also seeing inflows this month. Crude oil remains the biggest risk to the outlook, with Banerjee noting that "the wild card is the oil."
The influx of FCNR(B) deposits is set to significantly rejig banks' funding profiles by lowering their cost of deposits and easing pressure on net interest margins (NIMs). According to ICRA, banks will have to strategise on how to use these deposits, whether to grow the balance sheet size or cut down on the cost of deposits, with NIMs compressing for all banks across the spectrum. Bank of Baroda currently has a deposit base of ₹14 lakh crore as of March 31, 2026, with about 15% comprising wholesale deposits, while HDFC Bank's share of wholesale deposits in its total deposit mix rose to 20% in the June quarter from 17% a year ago. ICICI Bank Group CFO Anindya Banerjee noted that FCNR(B) funds are competitive under the current interest-rate structure, with rates of 6-6.6% compared to wholesale lending rates, and will be incrementally competitive for loan growth opportunities.
