Indian Rupee Takes Cues from Regional Peers Amid Persistent Foreign Outflows
Indian Rupee Takes Cues : The Indian rupee is expected to remain under pressure this week as persistent foreign portfolio outflows weigh on the currency. While the Reserve Bank of India (RBI) continues to intervene strategically, the rupee’s movement will largely be influenced by regional currency trends and global economic developments. Meanwhile, government bond yields are set to react to the central bank’s liquidity measures, shaping market sentiment in the near term.
Rupee’s Performance and Outlook
The rupee ended last week at 86.7125 per U.S. dollar, marking a slight weekly gain. However, it remains one of Asia’s weakest-performing currencies in 2025 due to consistent foreign investor sell-offs in Indian equities.
Foreign portfolio investors (FPIs) have offloaded over $11 billion worth of Indian stocks this year, keeping the rupee under stress. This trend is expected to persist in the coming weeks, with traders estimating that the currency will trade between 86.40 and 87.10 in the near term. Over a six-month horizon, some analysts predict the rupee may weaken further towards 88 per dollar.
Despite strong interventions by the RBI, which have helped curb speculative positioning against the currency, the overall trajectory remains one of gradual depreciation.
RBI’s Liquidity Measures in Focus
The RBI has been actively managing liquidity in the financial system through open market operations and forex swaps. The central bank recently conducted a $5 billion dollar-rupee buy/sell swap and has announced a $10 billion 3-year swap scheduled for February 28. These measures aim to inject liquidity into the banking system, ensuring stability in financial markets.
Over the past five weeks, the RBI has undertaken significant liquidity infusions:
- Purchased ₹1 trillion ($11.54 billion) worth of bonds via open market operations.
- Acquired ₹388 billion through secondary market bond purchases.
- Injected ₹440 billion through a dollar-rupee swap.
- Released ₹1.83 trillion via long-term repo operations.
According to Dipanwita Mazumdar, an economist at the Bank of Baroda, the focus should be on maintaining durable liquidity, given the recent depletion of foreign exchange reserves.
Bond Market and Inflation Trends
India’s benchmark 10-year bond yield ended marginally higher at 6.7065% on Friday and is expected to trade in the 6.67%–6.74% range this week. Traders are closely watching the RBI’s liquidity actions and global bond market movements for further cues.
Meanwhile, India’s inflation appears to be aligning with the RBI’s target of 4%, as reflected in the latest monetary policy committee (MPC) minutes. The central bank’s decision to cut interest rates by 25 basis points in February signals a shift towards supporting economic growth.
Despite this, foreign investors have turned net sellers of government bonds over the last two weeks, reflecting cautious sentiment amid global uncertainties.
Global Factors and Market Sentiment
This week, global market participants will be closely monitoring the U.S. personal consumption expenditure (PCE) inflation data, scheduled for release on Friday. This data will provide insights into the Federal Reserve’s future monetary policy stance. If U.S. inflation remains high, it could delay interest rate cuts, leading to further capital outflows from emerging markets like India.
As the rupee navigates these economic dynamics, traders will keep a close eye on RBI interventions, regional currency trends, and global inflation indicators. While short-term fluctuations are likely, structural economic factors and liquidity management efforts will play a crucial role in shaping the rupee’s long-term trajectory.
Key Financial Ratios and Indicators
| Indicator | Value |
|---|---|
| USD/INR Exchange Rate | 86.7125 |
| Foreign Portfolio Outflows (2025 YTD) | $11 billion |
| Rupee’s Expected Near-Term Range | 86.40 – 87.10 |
| 6-Month Forecast for Rupee | 88 per USD |
| 10-Year Bond Yield | 6.7065% |
| Expected Bond Yield Range (This Week) | 6.67% – 6.74% |
| RBI Liquidity Injection (OMOs) | ₹1 trillion |
| RBI Liquidity Injection (Repo Operations) | ₹1.83 trillion |
| RBI Forex Swap (Upcoming – Feb 28) | $10 billion |
| India’s Inflation Target | 4% |
| Latest RBI Interest Rate Cut | 25 basis points (Feb 2025) |
With the rupee facing headwinds from persistent FPI outflows and global economic uncertainties, market participants remain watchful of upcoming monetary policy decisions, RBI interventions, and global economic indicators. The coming weeks will be crucial in determining whether the rupee stabilizes or continues its downward trend.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.