The Indian rupee commenced the trading week under considerable pressure, experiencing a depreciation of 17 paise to reach 95.59 against the US dollar in early trading sessions. This downturn in sentiment among investors was primarily triggered by the Reserve Bank of India’s (RBI) recent decision to accelerate the cut-off date for its concessional Foreign Currency Non-Resident (Bank) or FCNR (B) deposit swap facility.
The RBI had previously announced on August 14th that this crucial swap facility would only remain available for FCNR (B) deposits mobilized until August 31st, effectively bringing forward the earlier established deadline of September 30th. This facility was initially introduced as a strategic measure to incentivize and attract greater foreign currency inflows into the Indian economy, thereby bolstering the nation’s foreign exchange reserves and providing stability to the domestic currency.
Further insight into the effectiveness of this scheme was provided by the central bank on Friday, which stated that the concessional swap facility had successfully attracted a substantial $56.84 billion as of August 13th. This influx of foreign currency was a significant factor in supporting the rupee’s stability.
In the interbank foreign exchange market on Monday, the rupee began its trading day at 95.50 against the US dollar, but quickly ceded ground, sliding further to 95.59. This decline contrasted with its performance on the preceding Friday, when the domestic currency had closed at 95.42 against the US dollar, having gained 3 paise.
According to Amit Pabari, Managing Director of CR Forex Advisors, the substantial inflows garnered through this facility had indeed provided robust support to the rupee. However, he cautioned that the market might soon begin to look beyond this temporary support mechanism. Pabari elaborated, “After attracting nearly $50 billion of forex inflows, the central bank has now announced that the facility will be available only for deposits mobilized until August 31, 2026. The support from these inflows remains significant, but the market will eventually begin looking beyond this temporary cushion.”
Pabari further suggested that while the rupee could find continued support in the immediate future, the overall risk-reward outlook appeared to lean towards potential weakness. From a technical analysis perspective, he indicated that the 95.20–95.30 zone is likely to serve as an important support area for the currency. “As long as this level holds, USD/INR could gradually move towards the 96.20–96.50 region in the coming days,” he predicted.
The FCNR (B) scheme itself is designed to enable banks to offer attractive interest rates on foreign currency deposits, thereby encouraging non-resident Indians and Persons of Indian Origin to deposit their foreign earnings in Indian banks. This mechanism plays a vital role in managing the nation’s foreign exchange liquidity.
Concurrently, other key financial indicators reflected a mixed global economic landscape. The dollar index, a measure of the US dollar’s value relative to a basket of foreign currencies, registered a slight decline of 0.12 percent, standing at 99.54. Meanwhile, Brent crude, the international benchmark for oil prices, saw an increase of 0.47 percent in futures trading, reaching $88.94 per barrel.
On the domestic equity front, Indian markets also commenced the day on a negative trajectory. The Sensex, India’s benchmark stock market index, declined by 284.85 points to 77,717.05, while the Nifty, another key index, fell by 69.25 points to 24,297.05.
Despite these immediate market movements, foreign institutional investors (FIIs) demonstrated continued confidence in Indian equities. Data from the exchanges showed that FIIs remained net buyers on Friday, acquiring shares worth a significant Rs 508.12 crore.
Furthermore, India’s foreign exchange reserves witnessed a substantial strengthening in the latest reporting week. The RBI announced on Friday that the reserves surged by $14.136 billion to reach $707.002 billion in the week ending August 7th. This impressive increase followed a prior rise of $10.512 billion, which had brought the reserves to $692.866 billion in the week ending July 31st, underscoring the nation’s robust financial position.
