Why Is the Rupee Still Near ₹96/$ Despite $72.8 Billion of Dollar Inflows?

Written by Finnovate

Content Team

India has received an extraordinary amount of foreign currency over the past few months.

By August 21, 2026, the Reserve Bank of India’s special forex swap facility had attracted about $72.85 billion through FCNR(B) deposits, overseas foreign-currency borrowings and external commercial borrowings. Almost $65.4 billion of that came through FCNR(B) deposits alone.

India’s foreign-exchange reserves have also climbed sharply, reaching about $716.9 billion as of August 14.

Foreign portfolio investors have returned to Indian equities too.

Yet the rupee is still hovering around ₹95.7 to ₹96 per US dollar.

So where did all those dollars go?

A large share of the foreign-currency inflows has strengthened the RBI’s reserve buffer, while oil imports, the trade deficit, corporate hedging and high global yields continue creating demand for dollars.

The rupee-dollar paradox at a glance

At first glance, these numbers look difficult to reconcile.

India has attracted large foreign-currency inflows, rebuilt its reserves and seen foreign investors return to stocks.

Yet the rupee remains under pressure.

The $72.8 billion is not simply flooding the spot currency market

The RBI introduced a special USD-INR forex swap facility covering fresh eligible foreign-currency mobilisation through FCNR(B) deposits, External Commercial Borrowings and Overseas Foreign Currency Borrowings.

Banks raising eligible foreign currency can swap those dollars with the RBI.

This means a large part of the dollar inflow does not remain as additional dollar supply in the open forex market. Instead, it moves onto the RBI’s balance sheet.

India’s forex reserves show where much of the dollar inflow went

India’s foreign-exchange reserves reached approximately $716.9 billion as of August 14, a six-month high.

More importantly, the reserve pile had increased by almost $50 billion in seven weeks.

The objective is not necessarily to push USD/INR sharply lower. Part of the purpose is to build a larger foreign-currency buffer that the RBI can use when market conditions become difficult.

India is still generating enormous demand for dollars

While billions of dollars are flowing into the financial system, Indian businesses are simultaneously buying billions of dollars to pay for imports.

The deficit had been $96.66 billion during the same period a year earlier, meaning India’s merchandise trade deficit widened by roughly 23%.

July alone produced a merchandise deficit of approximately $31.98 billion.

Oil and electronics alone explain a large structural dollar requirement

Combined, the reported petroleum and electronics categories show a gap of roughly $80 billion.

This should not be directly subtracted from the RBI’s $72.85 billion of financial inflows. Trade flows and capital flows are different parts of the balance of payments.

Crude oil is making the equation harder

Brent crude has recently traded above $90 per barrel amid continuing geopolitical uncertainty.

India imports more than 85% of the oil it consumes. When crude prices rise, Indian refiners need more dollars to pay suppliers abroad.

It is not just oil. Companies are buying and hedging dollars too

Indian companies also require dollars for imports, overseas borrowings, debt repayments, derivatives and hedging future foreign-currency liabilities.

Corporate hedging demand has remained strong.

High US bond yields are adding another layer of pressure

The US 30-year Treasury yield recently reached around 5.34%, its highest level since 2007. The 10-year yield has also traded around 4.7%.

If investors can earn high yields on US government bonds, the hurdle rate for investing in emerging markets becomes higher.

Rising US debt, inflation concerns, heavy Treasury issuance and geopolitical risks have all contributed to pressure on long-term US yields.

US government debt has now crossed $40 trillion.

But the broad US dollar itself is not exceptionally strong

The US Dollar Index has recently been around 99.

That is below 100 and hardly represents a runaway dollar rally.

This also explains why some other currencies can strengthen against the dollar while INR remains stuck near ₹96.

Even FPI buying has not been enough to push the rupee higher

Foreign portfolio flows have improved meaningfully, with overseas investors buying more than $2.5 billion of Indian equities in August by August 25 after approximately $2.1 billion of buying in July.

That is supportive for the currency, but it must be viewed against the scale of other dollar demand.

• A $30+ billion monthly merchandise deficit
• A large oil-import requirement
• Corporate hedging demand
• Overseas debt payments
• Other capital flows moving both ways

So FPI inflows can reduce pressure without necessarily producing rupee appreciation.

Then are the $72.8 billion of dollar inflows doing nothing?

No.

The fact that the rupee has not strengthened sharply does not mean the RBI’s dollar-mobilisation programme has failed.

We cannot know exactly where the rupee would have traded without these inflows. But the larger reserve buffer gives the RBI more capacity to smooth excessive currency volatility.

What could finally make the rupee strengthen?

1. Crude oil

A sustained fall in Brent would reduce India’s import bill and immediate dollar demand.

2. Trade deficit

A narrowing merchandise deficit would improve the underlying demand-supply equation for foreign currency.

3. Foreign investment

Continued FPI inflows into equities and bonds would increase dollar supply.

4. US Treasury yields

Lower US yields could make emerging-market assets relatively more attractive.

5. RBI intervention and reserve policy

How aggressively the RBI buys or sells dollars will continue to influence short-term USD/INR movements.

The FCNR(B) special swap window closes on August 31, making the period after the window an important test of how much support remains once this extraordinary source of dollar mobilisation slows.

That is why the rupee can remain weak even while India’s foreign-exchange reserves become much stronger.

FAQs

1. Why is the Indian rupee weak despite large dollar inflows?

A large part of the foreign currency raised under the RBI’s special swap facility is being absorbed into the central bank’s reserves rather than entering the spot currency market. At the same time, oil imports, the merchandise trade deficit and corporate dollar demand continue to pressure the rupee.

2. How much has India raised through the RBI forex swap facility?

As of August 21, 2026, around $72.85 billion had been mobilised, including approximately $65.4 billion through FCNR(B) deposits.

3. What are India’s forex reserves now?

India’s forex reserves stood at around $716.9 billion as of August 14, 2026, close to the record level reached earlier in the year.

4. Why does higher crude oil weaken the rupee?

India imports most of its crude oil. Higher oil prices increase the number of dollars Indian refiners need to buy, increasing demand for USD and putting pressure on INR.

5. Is RBI fixing the rupee at ₹96 per dollar?

No official ₹96 exchange-rate target has been announced. Traders have, however, repeatedly reported RBI-linked dollar selling when the rupee approaches that area, suggesting the central bank is trying to limit excessive volatility rather than defend a formally declared exchange rate.

Disclaimer: This article is for educational and informational purposes only and should not be treated as investment, currency or financial advice. Exchange rates can move rapidly because of global interest rates, oil prices, capital flows, trade conditions and central-bank actions.