Despite significant foreign portfolio investor (FPI) outflows in February, the Indian Rupee managed to avoid sharp depreciation, due largely to a stable US dollar and the Reserve Bank of India’s (RBI) strategic interventions, a Bank of Baroda report reveals. The rupee weakened by one per cent in February 2025, following a 1.2 per cent drop in January.
The report emphasizes that external factors, especially the US Federal Reserve’s policy stance and concerns over higher tariffs on Indian exports by the new US administration, have negatively influenced investor sentiment, leading to capital outflows. So far in 2025, FPIs have withdrawn approximately USD 12 billion, predominantly from the equity market, although the Fully Accessible Route (FAR), allowing foreign investments in government bonds, has provided some support.
As the rupee faces ongoing pressure, the report predicts its near-term trading range to be between 86.75 and 87.75 per US dollar. The RBI recently bolstered its forex reserves by executing a USD/INR swap, preparing to intervene if trade tensions worsen. Although there are positive economic signals, sustainable rupee recovery relies on global risk sentiment and stabilized FPI flows.
