Rupee stable in real effective terms, external buffers strong, says RBI

According to the Reserve Bank of India's (RBI) December Bulletin, the Indian rupee was in effect very stable in November as its nominal effective depreciation was actually offset by increased prices in India over its major trading partners.

Dollar strength weighed on rupee

The rupee lost ground versus the US dollar during November due to the dollar's strength, limited foreign portfolio investment, and the ambiguity of the India-US trade negotiations.

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In November, India's price coefficient of variation indicated a decrease in the variability of the rupee compared to October and it remained relatively low compared to most other currencies.

December sees mild rupee depreciation

So far in December (up to 19), the INR has depreciated 0.8 per cent against its end-November level, as noted by the Bulletin.

The period starting from 2025 to 2026 has seen FPI outflows from the equity market, which has been the primary reason for the net FPI registered outflows up to December 18.

FPI entailed outflows in December after two months of inflows.

According to RBI in its Bulletin, the trade deal between India and the US is not yet finalized and this together with the investors' caution because of the high domestic valuations resulted in the net foreign institutional investor's (FPI) flows to Indian markets being muted in the last few months.

The external commercial borrowings (ECBs) registrations showed a decline in numbers during the period of April–October 2025 which is an indication of less offshore fund raising activity. In fact, the drawdown of funds through ECBs was less than the previous year. One of the major reasons for availing ECB was for the capital expenditure.

FPI outflows continue into 2025–26

Moreover, the current account deficit of India's decreased in the second quarter of 2025-26 if compared to the same quarter last year, as cited by IANS.

This was due to the lower merchandise trade deficit, good services exports and strong remittance receipts.

But the net capital inflows were not enough to cover the current account financing requirements which made the foreign exchange reserves go down.

However, the foreign exchange reserves of India still remain to be adequate and more than 11 months of goods imports can be covered with this amount. Furthermore, it is equivalent to 92 percent of the total external debt outstanding according to the RBI.