Indian Rupee Rises on Dollar Softness

The Indian rupee rose to around 90.5 per dollar, extending gains from the previous session, supported by a softer dollar and declines in US Treasury yields. Its upside, however, was limited by persistent importer hedging and sustained dollar demand. Market sentiment was further bolstered by ample domestic liquidity. Large cash infusions by the Reserve Bank of India pushed the key overnight borrowing rate roughly 100 basis points below the policy benchmark and created the largest liquidity surplus in six months. The RBI refrained from short-term draining measures, kept overnight rates low, and maintained the surplus near INR 3 trillion, supported by federal spending and ongoing injections. Meanwhile, broader macro indicators, including flat December retail sales and a smaller-than-expected rise in the Employment Cost Index, pointed to softer domestic demand, reinforcing market caution.

The Indian rupee inched higher to around 90.7 per dollar, extending gains for the fourth straight session as investors weighed optimism over an interim US–India trade framework and its potential to attract renewed foreign investment into domestic markets. Overseas investors have begun returning to Indian equities this month, with roughly $900 million in net purchases so far, reversing about $4 billion in outflows seen in January as global sentiment improved. Further bolstering the currency, the Reserve Bank of India reported a sharp rise in the country’s foreign exchange reserves, which climbed to a fresh record of roughly $723.8 billion as of January 30. A larger reserve buffer strengthens India’s external position, giving the RBI more flexibility to manage currency volatility. Investors are now awaiting key domestic inflation data due this Thursday, which will help shape expectations around the Reserve Bank of India’s policy stance.

The Indian rupee rose to around 90.2 per dollar, extending gains to its strongest level in over three weeks as the central bank signaled continued policy stability. The Reserve Bank of India kept its key repo rate unchanged at 5.25%, in line with expectations. The hold reflects confidence in a softer inflation outlook and reassures markets that accommodative conditions will persist. The currency also continues to receive support from residual optimism over the US-India trade deal, which reduces US tariffs on Indian imports from nearly 50% to 18%, while protecting agricultural and key export sectors. At the same time, one-off dollar sales and relatively light market positioning further lifted the rupee, despite external headwinds and a fragile risk environment. Analysts note that near-term movements will continue to hinge on global risk sentiment, capital flows, and clarity around trade deal implementation, as well as the Budget session.