The Indian rupee strengthened to a two-month high against the US dollar on September 1, defying a broad selloff in Asian currencies triggered by a global bond-market rout. The currency closed at ₹94.95 per dollar, gaining 0.2% and marking its third consecutive session of gains. The move was driven largely by continued Reserve Bank of India intervention, strong dollar inflows through foreign banks and improving sentiment following India’s robust economic growth data.
The rupee’s resilience is particularly notable because the broader global environment has been unfavorable for emerging-market currencies. Japan’s 10-year government bond yield reached 3% for the first time in three decades, while US Treasury yields also climbed as investors increased bets on higher interest rates amid renewed inflation concerns.
RBI intervention provides major support
The most important factor behind the rupee’s recent strength has been the RBI’s active presence in the foreign-exchange market.
Traders said the central bank sold US dollars through state-run banks, helping increase dollar supply and reduce upward pressure on the USD/INR exchange rate. The RBI has been intervening regularly in recent sessions as it attempts to prevent excessive volatility in the currency market.
The intervention has become particularly significant because the rupee has faced several external pressures, including elevated crude oil prices, geopolitical uncertainty and rising global bond yields.
Market participants estimate that the RBI has sold more than $8 billion across spot and offshore markets in recent sessions. The central bank’s foreign-exchange forward book has also expanded significantly, reaching nearly $137 billion in July, highlighting the scale of its currency-management operations.
The RBI has maintained that it does not target a particular exchange-rate level. Instead, its intervention is aimed at limiting excessive volatility and maintaining orderly market conditions.
Foreign inflows add to rupee strength
Another major source of support has been increased dollar supply from foreign investors and banks.
Foreign Portfolio Investors invested around $3.1 billion in Indian equities during August, the highest monthly inflow in nearly two years, according to National Securities Depository data cited by Reuters. This marked the second consecutive month of net foreign buying.
The latest inflows have been supported by stronger corporate earnings expectations and improving sentiment toward Indian assets.
MSCI index-related flows also provided additional support at the end of August. Foreign banks sold dollars as funds adjusted their positions following changes to MSCI index weights, creating additional demand for the rupee.
This combination of equity inflows and RBI intervention has helped the currency overcome some of the pressure normally associated with rising global yields.
Strong Indian GDP growth boosts confidence
Domestic economic data has also strengthened sentiment toward the rupee.
India’s economy grew by 7.8% in the first quarter of FY27, providing evidence of strong domestic demand and economic activity. The better-than-expected growth performance has encouraged investors to maintain confidence in Indian assets despite volatility in global markets.
Strong economic growth can support a currency by attracting foreign investment and improving expectations for corporate earnings.
The RBI has also recently raised its full-year growth forecast to 6.7%, indicating continued confidence in the underlying strength of the Indian economy.
Why global bond yields are a problem
The rupee’s gains are particularly noteworthy because global bond markets have been moving in the opposite direction.
A global bond selloff has pushed yields higher across major economies. Japan’s 10-year yield reached 3%, its highest level since 1996, while the US 10-year Treasury yield climbed to around 4.79%. UK 10-year gilt yields also reached their highest level since the global financial crisis.
Higher bond yields can make developed-market assets more attractive to investors and potentially encourage capital to move away from emerging markets.
Higher US yields can also strengthen the dollar, creating additional pressure on currencies such as the rupee.
The fact that the rupee has strengthened despite these conditions highlights the impact of RBI intervention and domestic capital inflows.
Rising crude oil prices limit further gains
The rupee’s recovery is not without obstacles.
Brent crude rose above $92 per barrel, increasing concerns for India because the country relies heavily on imported oil. Higher crude prices increase India’s import bill and can raise demand for US dollars from oil importers.
The increase in oil prices is also connected to renewed geopolitical tensions involving the United States and Iran.
Higher oil prices therefore represent a major risk to the rupee’s recent gains. If crude remains elevated for an extended period, the additional dollar demand could make it harder for the currency to strengthen further.
RBI’s FCNR(B) scheme boosts dollar liquidity
The RBI has also benefited from strong inflows generated through its temporary FCNR(B) deposit scheme.
The measures introduced in June attracted around $72.85 billion in inflows by August 21, with approximately $65.4 billion coming through FCNR(B) deposits. The influx has provided the central bank with additional foreign-currency resources that can be used to manage volatility.
The special deposit window closed at the end of August, meaning traders will now watch whether the pace of fresh inflows remains strong after the scheme expires.
Some of these inflows have also allowed the RBI to improve its foreign-exchange position and reduce forward dollar liabilities.
How long can the rupee remain strong?
Analysts believe the rupee could remain relatively stable in the near term, although further gains may be limited.
Finrex Treasury Advisors expects the currency to trade in a relatively narrow ₹94.75–₹95.25 per dollar range, with higher crude prices and global bond yields acting as constraints on the rupee’s upside.
Other analysts are also watching the ₹95 level closely because it has become an important psychological point for traders.
The key question is whether the current strength represents a sustainable improvement in the rupee’s underlying fundamentals or is largely the result of central-bank intervention and temporary capital flows.
What investors will watch next
The rupee’s direction in the coming weeks will depend on several factors.
Crude oil prices will remain critical, particularly as tensions in the Middle East continue. A further rise in oil could increase India’s import bill and put renewed pressure on the currency.
US interest-rate expectations will also matter. If US Treasury yields continue climbing and markets increase bets on a Federal Reserve rate hike, the dollar could regain strength.
At the same time, continued foreign portfolio inflows could provide support for the rupee, particularly if Indian corporate earnings remain strong.
Finally, investors will watch the RBI’s intervention strategy now that the FCNR(B) deposit window has closed.
For now, the rupee’s move to ₹94.95 per dollar represents a notable show of resilience. It has strengthened despite a global bond selloff, higher crude prices and geopolitical uncertainty. Strong domestic growth, foreign inflows and aggressive RBI intervention have created a powerful support system for the currency.
The immediate outlook therefore remains relatively stable, but the rupee’s ability to sustain its gains will depend on whether foreign inflows continue and whether global bond yields and crude oil prices begin to ease. If those external pressures remain elevated, the RBI’s intervention could remain crucial in keeping the currency near its current levels.
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