Rupee Holds Firm as RBI Swap Exit Weighs on USD/INR

Key Moments

Rupee Steadies Despite RBI’s Early FCNR Swap Exit

The Indian Rupee (INR) was stronger against the U.S. Dollar (USD) on Monday after previously declining for two consecutive sessions, with the USD/INR pair quoted around 95.60 at the time of writing. The currency’s resilience comes in the wake of the Reserve Bank of India’s (RBI) decision to terminate its foreign currency non-resident (FCNR) deposit FX swap facility one month before the originally planned end date.

The RBI’s announcement was accompanied by data indicating that its policy initiatives, including the FCNR deposit swap window, attracted close to $57 billion. While the Rupee has held firm initially, the withdrawal of this facility could create headwinds for the currency going forward and may ultimately push USD/INR higher.

Trading Range Expectations and Flow Dynamics

Market participants anticipate that USD/INR will trade in a 95.00 to 95.50 band this week. Some dealers expect a short-term pick-up in demand from overseas clients aiming to complete FX deposit placements before the FCNR window formally closes on August 31. In addition to this pre-deadline activity, foreign portfolio flows and routine hedging operations are expected to be key drivers for the pair in the near term.

Investors will also be focused on the minutes of the RBI’s August policy meeting, where interest rates were left unchanged. Looking ahead, most analysts foresee either a modest rate-hiking cycle beginning in December or an extended pause through the remainder of 2026, depending on how incoming data evolve.

India Inflation Profile Backs RBI’s Hold Stance

Analysts at Societe Generale noted that India’s inflation dynamics remain largely contained. They emphasized that headline CPI “edged up modestly to 4.45% yoy in July from 4.38% in June,” a development they describe as “reinforc[ing] the latest decision by the RBI to keep policy on hold.” This inflation backdrop provides the central bank with room to maintain a wait-and-see approach for now.

U.S. Data Undermines Dollar, Eases Fed Hike Expectations

USD/INR is holding recent losses as the Dollar weakens, pressured by softer U.S. macroeconomic releases and changing Federal Reserve expectations. The U.S. Census Bureau reported on Friday that Retail Sales declined by 0.6% month-over-month in July, reversing a 0.2% increase in June and missing the consensus forecast for a 0.1% gain. On a year-over-year basis, Retail Sales rose 5.0% in July compared with 6.8% previously.

A series of weaker readings across CPI, PPI, and Retail Sales has led traders to scale back expectations for additional Fed tightening. According to pricing reflected by the CME FedWatch tool, markets now assign a 33.1% probability to a rate increase next month, down from 44% the week before.