Rupee Steady as FPI Outflows and Global Factors Weigh on Markets

New Delhi : Despite persistent foreign portfolio investor (FPI) outflows and mounting global economic pressures, the Indian Rupee demonstrated resilience in February, avoiding sharp depreciation. A report by the Bank of Baroda attributes this stability to a relatively steady US dollar and strategic interventions by the Reserve Bank of India (RBI). The report highlights that although the rupee weakened by one per cent in February 2025, following a 1.2 per cent drop in January, the currency’s decline has been controlled due to RBI’s proactive measures in managing forex reserves and stabilizing market fluctuations.

The report underscores that external factors continue to shape investor sentiment and influence capital movements. The US Federal Reserve’s policy stance, particularly its approach to interest rates, has played a crucial role in driving FPI outflows. Additionally, concerns over potential tariff hikes on Indian exports by the newly elected US administration have led to further apprehensions among investors. The cumulative FPI withdrawals in 2025 have reached approximately USD 12 billion, primarily from the equity segment. However, the Fully Accessible Route (FAR), which facilitates unrestricted foreign investment in government securities, has mitigated some of the adverse effects by attracting foreign capital into India’s bond markets.

As global uncertainties persist, the rupee remains vulnerable to external shocks. According to the report, the currency is expected to trade within a narrow band of 86.75 to 87.75 per US dollar in the near term. The RBI has been actively managing liquidity and forex reserves to counter excessive volatility. A key measure undertaken by the central bank includes a USD/INR swap, which has helped maintain stability amid fluctuating market conditions. This move, along with RBI’s readiness to intervene in case of worsening trade tensions, signals a strong commitment to preserving the rupee’s value.

Market analysts believe that the rupee’s future trajectory will depend largely on global economic conditions, especially developments in the US economy, crude oil prices, and geopolitical risks. If FPIs regain confidence in Indian markets, capital inflows could help support the rupee in the coming months. Meanwhile, policymakers continue to closely monitor external developments to ensure that the currency remains within a manageable range.

Despite prevailing challenges, India’s economic fundamentals remain robust, providing some cushion against external headwinds. The central bank’s intervention strategies, coupled with a cautious approach by investors, will play a key role in determining the rupee’s movement in the foreseeable future.