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Rupee to stay in Rs 94.5-96 range near term: Bank of Baroda

The rupee is likely to remain in the Rs 94.5-96 per dollar range in the near term despite sizeable inflows through FCNR deposits and external commercial borrowings, a Bank of Baroda research report said. The inflows went largely into RBI reserves rather than the market, limiting appreciation. The rupee has lost about 28% since January 2022, with the average rate moving from Rs 74.44 to Rs 95.47 in August 2026. Combined spot and forward intervention explained 34% of movements.

Written by AI from Times of India — Business · not yet reviewed by an editor · Published 26 Sept 2026, 4:24 pm IST

Source

Times of India — Business · read the original report ↗

#rupee#us dollar#bank of baroda#rbi#forex#currency

Desk check · compared with the source

What the desk checked (5)

Rupee likely to stay in Rs 94.5-96 per dollar range in the near term — Attributed to a Bank of Baroda research report and supported by a direct quote in the source.
FCNR deposit and ECB inflows went largely into RBI reserves rather than the market, limiting rupee appreciation — Attributed to the same report, with a quoted line in the source; no independent data cited.
Rupee has lost about 28% since January 2022, with average rate moving from Rs 74.44 in January 2022 to Rs 95.47 in August 2026 — Figures appear in the source as report findings; the August 2026 dating is internally consistent with the report's stated January 2022-June 2026 data window but cannot be externally verified here.
Yen fell 38%, Indonesian rupiah 24%, South Korean won 17%; dollar gained 2.4% against the euro — Figures appear in the source, attributed to the report; no external verification.
Combined spot and forward RBI intervention explained 34% of rupee movements, spot alone 25%, forward alone 19%, reserves 18%; all variables explained no more than 40% — Statistical figures appear in the source as report results; internally consistent.

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Deep dive

Research brief · 8 facts · 4 dates · exam-ready

The brief

Context

The rupee has hit repeated record lows against the US dollar over the past year, and questions have grown over what actually drives its movements. A Bank of Baroda research report studied monthly currency data from January 2022 to June 2026, examining forex reserves, RBI spot and forward market operations, FPI flows and the dollar-euro rate. It concludes that no single factor dominates, and that despite large dollar inflows via FCNR deposits and external commercial borrowings, the rupee should stay in a Rs 94.5-96 per dollar band in the near term because those inflows went into RBI reserves rather than the market.

Key facts

Bank of Baroda expects the rupee to trade in a Rs 94.5-96 per dollar range in the near term.
The rupee has depreciated around 28 per cent since January 2022.
Average exchange rate moved from Rs 74.44 per dollar in January 2022 to Rs 95.47 in August 2026.
Combined RBI spot and forward intervention explained 34 per cent of rupee movements, versus 25 per cent for spot alone and 19 per cent for forward alone.
Forex reserves had limited explanatory power of only 18 per cent for exchange rate movements.
All variables studied together explained no more than 40 per cent of the variation in the rupee.
Peer currency moves in the period: yen down 38 per cent, Indonesian rupiah down 24 per cent, South Korean won down 17 per cent; the dollar gained 2.4 per cent against the euro.
The report's data set covered monthly currency data between January 2022 and June 2026.

Timeline

January 2022Rupee's average exchange rate at Rs 74.44 per dollar; start of the report's study period.
January 2022 to June 2026Period of monthly data examined by Bank of Baroda covering reserves, RBI spot and forward operations, FPI flows and dollar-euro moves.
August 2026Rupee's average rate at Rs 95.47 per dollar, about 28 per cent weaker than January 2022.
Near term (as per report)Rupee expected to stay within Rs 94.5-96 per dollar.

Who has a stake

Reserve Bank of India — Manages rupee volatility through spot and forward intervention; report suggests using both together is more effective.
Importers and exporters — Timing of their dollar purchases contributes to the unexplained, sentiment-driven part of rupee movement; costs hinge on the 94.5-96 band.
NRI depositors and ECB borrowers — FCNR deposits and external commercial borrowings brought sizeable dollar inflows, but these went into reserves rather than the market.
Foreign portfolio investors — FPI flows showed a significant link with the rupee individually, but the significance vanished once other variables were included.
Bank of Baroda research team — Authored the analysis projecting the near-term rupee range and assessing drivers of the exchange rate.

Why it matters

The exchange rate shapes import bills, inflation, external debt servicing and returns for foreign investors, so a credible near-term band matters for businesses and policymakers alike. The finding that large dollar inflows parked in reserves do not automatically strengthen the rupee, and that up to 60 per cent of its movement is unexplained by measurable variables, challenges simple flow-based narratives. It also indicates that RBI's combined spot and forward operations, rather than reserve accumulation alone, are the more potent lever.

UPSC angle

Prelims pointers

Bank of Baroda report projects rupee at Rs 94.5-96 per dollar in the near term.
Rupee fell about 28 per cent from Rs 74.44 (January 2022) to Rs 95.47 (August 2026) average.
Combined RBI spot plus forward intervention explained 34 per cent of rupee movements; reserves only 18 per cent.
FCNR deposits and ECBs are key routes of dollar inflows into India.
Depreciation in the study period: yen 38 per cent, rupiah 24 per cent, won 17 per cent; dollar rose 2.4 per cent versus euro.
Study covered monthly data from January 2022 to June 2026; overall explanatory power capped at 40 per cent.

Mains framing

The rupee's roughly 28 per cent slide since January 2022 is often attributed to single causes such as weak capital flows or dollar strength, but the Bank of Baroda analysis shows the exchange rate is the product of fundamentals, central bank intervention and market sentiment acting together. Statistically, RBI's spot and forward operations taken jointly explain 34 per cent of movements, more than spot (25 per cent) or forwards (19 per cent) alone, while forex reserves explain just 18 per cent and FPI flows lose significance once other variables enter the model; in all, the variables capture no more than 40 per cent of the variation, with the residual traced to sentiment, the timing of importer and exporter dollar purchases and remittance flows. A comparative view matters too: the yen, rupiah and won also weakened 38, 24 and 17 per cent respectively, indicating a broad dollar-strength environment rather than a purely India-specific story. The policy implication is that accumulating dollar inflows from FCNR deposits and ECBs into reserves cushions vulnerability but does not by itself deliver appreciation; a calibrated mix of spot and forward operations, clearer signalling to anchor market expectations, and attention to the behavioural timing of trade-related dollar demand are the more realistic levers for containing volatility within the projected Rs 94.5-96 band.

Key terms

FCNR deposits: Foreign Currency Non-Resident deposits, held by NRIs in foreign currency with Indian banks, a route for dollar inflows.
External Commercial Borrowings (ECBs): Foreign currency loans raised by Indian entities from overseas lenders, another major source of dollar inflows.
Spot intervention: RBI buying or selling dollars for immediate delivery in the currency market to influence the rupee.
Forward intervention: RBI dollar transactions for settlement at a future date, used alongside spot operations to manage the rupee.
FPI flows: Foreign portfolio investment into Indian equities and debt; linked to the rupee individually but not significantly once other factors are included.
Forex reserves: RBI's stock of foreign currency assets; the report found these explain only 18 per cent of rupee movements.

Practice questions

Why do large dollar inflows through FCNR deposits and ECBs not necessarily lead to rupee appreciation? Discuss with reference to the role of RBI reserves.
Evaluate the effectiveness of combined spot and forward foreign exchange intervention by the RBI in managing exchange rate volatility.
'No single variable explains rupee movements.' Examine this statement in the light of the roles of fundamentals, central bank intervention and market sentiment.

Grounded only in the source report — figures and dates are the source's, not inferred.

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