The rupee’s downside is now looking increasingly well protected, and we see the 97.00–97.50 zone acting as a firm upper cap on the dollar-rupee pair. The single biggest reason is the scale of the inflows coming through the Reserve Bank’s special window. The Governor has confirmed that close to $32 billion has already been mobilised, the bulk of it through FCNR(B) deposits, with another $7 billion arriving as foreign portfolio investment into government bonds. What is important is the pattern of these schemes—historically, the surge comes in the final phase, in the last few weeks before the window closes at the end of September. If the current run-rate holds and that end-phase surge materialises, the total can comfortably reach $50 to $60 billion. That is significant ammunition for the Reserve Bank, though how much of it actually supports the rupee will depend on how much the central bank allows to flow into the spot market rather than absorbing it into reserves.
Alongside this, portfolio flows have genuinely turned. July has seen close to $4.5 billion of foreign inflows, with debt clearly positive and equity now marginally positive as well—a meaningful shift after the outflows earlier in the year. The offsetting variable, as always, is crude. Provided Brent does not sustain above $102, we expect 97.00–97.50 to hold as the cap, and we see scope for the rupee to appreciate towards 95.00 over the near term. The other swing factor is this week’s Federal Reserve meeting. If the Fed sounds less hawkish than the market currently expects, that would ease pressure on US yields and the dollar, and would be an additional tailwind for the rupee.