The Indian rupee has made a significant leap against the US dollar, marking its strongest performance in two months. On March 21, the rupee rose for the sixth consecutive session, buoyed by robust dollar inflows and a winding down of speculative dollar positions. This surge not only secured the rupee its best week in over two years but also positioned it as the leading Asian currency in March 2025.

INR Gains Momentum

The domestic currency appreciated by 38 paise, closing at 85.98 against the greenback, up from 86.3675 in the previous session. This impressive gain was driven by a rally in the domestic equity markets and fresh foreign investments. During trading, the rupee reached a notable 10-week high of 85.9375 and enjoyed a 1.2% increase over the week.

• Key Highlights:
  • INR closed at 85.98 after gaining 38 paise.
  • Attained a 10-week high of 85.9375 during the trading session.
  • Achieved a 1.2% weekly increase, marking its best performance in two years.

Factors Driving the Rupee’s Strength

FTSE Rebalancing Influence

Market analysts noted that significant foreign banks anticipated a substantial influx this week, leading to increased dollar offerings in the dollar/rupee pair. The upcoming rebalancing of the FTSE’s All-World Index is projected to inject approximately $1.5 billion into the Indian market.

Surge in Foreign Capital Inflows

After a period of selling, foreign portfolio investors have resumed buying in two of the last four trading sessions. This reinvestment has helped the rupee counteract the downward trend experienced by many other Asian currencies.

RBI Intervention and Positive Trade Data

Dilip Parmar, a Senior Research Analyst at HDFC Securities, highlighted that the rupee’s rise was fueled by better-than-expected trade figures and an increase in foreign exchange reserves, bolstered by the Reserve Bank of India’s (RBI) intervention in the USD/INR market.

Equity Market Performance

The Nifty 50 index experienced its largest weekly gain in over four years, reflecting renewed confidence from foreign investors. It closed at 23,350.4, up 0.69%, while the BSE Sensex climbed 0.73% to settle at 76,905.51, marking their highest closing levels in six weeks.

Future Outlook for the Rupee

Looking ahead, Jateen Trivedi, VP of Research at LKP Securities, noted that the rupee strengthened to 85.94 due to surging foreign inflows and the US Federal Reserve’s decision to maintain steady interest rates, which weakened the dollar.

• Analysts predict:
  • A trading range of 85.65 to 86.30 for the rupee.
  • If the rupee does not breach the 85.90 level, it may encounter depreciation pressures, with immediate support expected between 86.80 and 87.00.

As the rupee continues to show resilience, its performance in the coming weeks will heavily depend on global market sentiments and further capital flow dynamics.