Rupee Holds Ground as Foreign Funds and Weak Dollar Provide Support
The Indian currency showed resilience recently, helped by a mix of steady foreign fund inflows, a softer greenback and lower crude oil prices. These factors combined to ease downward pressure and stabilise the rupee against major currencies.
Key drivers behind the stability
- Foreign fund inflows: Continued portfolio and institutional investment into domestic markets has provided steady demand for the rupee, supporting its value.
- Weak greenback: A softer US dollar reduced global pressure on emerging market currencies, giving the rupee room to breathe.
- Lower crude oil prices: Cheaper oil eases import costs and helps improve the trade balance, which is typically positive for the rupee.
Why these factors matter
Foreign investments bring in dollars, which boosts forex reserves and helps manage volatility. Meanwhile, a weak dollar often signals looser global liquidity conditions, encouraging capital flows into risk assets like Indian equities. Lower oil prices cut the import bill for energy-intensive economies, narrowing the current account deficit and reducing long-term pressure on the currency.
Risks to watch
- Global market sentiment: A sudden shift in risk appetite could reverse foreign fund flows and strain the rupee.
- Oil price volatility: A rebound in crude would increase import costs and could weaken the currency.
- Monetary policy moves: Changes in major central bank policies, especially in the US, can lift the dollar and affect emerging market currencies.
For now, the mix of foreign inflows, a softer dollar and lower oil prices has kept the rupee on a firmer footing. Market participants will still be monitoring global cues and domestic economic data closely to gauge the near-term direction.