Foreign banks have become important players in strengthening the Indian rupee by actively selling US dollars in the foreign exchange market. As leading entities in currency transactions foreign banks facilitate foreign exchange liquidity management while volatility occurs in the market. The Indian market benefits from foreign banks' dollar investments because it raises foreign currency supply which forces the rupee to strengthen. The currency stabilization process accepts US dollars from markets resulting in rupee stability against the US dollar thus encouraging foreign investments and protecting the currency from substantial depreciation. The Reserve Bank of India (RBI) works jointly with banks to control market interventions which help preserve reasonable limitations on the rupee's exchange value.

The sale of dollars by foreign banks is not only driven by RBI's efforts but also by their own market assessments. Foreign banks initiate dollar sales if they identify a depreciated value of the rupee and an overpaid value of the US dollar. The rupee obtains further strength because this move reduces the price difference between Indian rupees and foreign currencies. Foreign banks increase the Indian economy's stability by managing currency exchange values through their dollar sales operations which reduces inflation and promotes better trade balance and helps build investor trust. The worldwide strengthening of the rupee depends heavily on the dollar sales provided by foreign banks.

The Indian Rupee’s Stability amid Global Shifts

During the past decade the Indian rupee evolved from a highly unstable currency in Asia to become one of its most stable currency units. India’s stable economic conditions under the Reserve Bank of India’s (RBI) effective leadership along with political stability constitute the primary reasons for the rupee’s transformation into Asia’s most stable currency. Indian economic conditions during the early 2010s included substantial inflation together with the impact of global financial instability leading to a depreciating rupee that placed it among 'Fragile Five' economies.

Since Prime Minister Narendra Modi took power in 2014 India has achieved substantial economic expansion which triggered foreign investment through structural improvements and robust financial control. The Reserve Bank of India achieves foreign exchange stabilization by purchasing dollars for strong rupee periods and selling dollars for weak rupee situations. The nation has transformed into a center for international capability centers which helps stabilize the economy.

The Indian rupee touched its most severe reduction point in about two years when it settled at Rs 86.62 against the dollar on January 13. The depreciation arose from three main factors: domestic inflation rose higher and foreign capital left India as well as exporters pivoting to more income-dependent items instead of price-dependent ones. The depreciation of the rupee leads to higher import costs but it fails to necessarily enhance merchandise exports because global market demands remain dynamic.

The currency depreciation of the Indian rupee produces limited trade impact due to the rising export share of refined petroleum chemicals and machinery products. Foreign investors withdraw more money from India because they face additional complications from the US political situation as well as worldwide economic slowdowns. The decrease in labor and capital costs combined with the weakening rupee position earns India more business interest and boosts sectors such as software exports and remittances. Depreciation in the Indian rupee stays under control as long as it does not reach 4% annually.

Kaushik Das, Chief Economist for India and South Asia at Deutsche Bank, says ”The current account deficit of less than 1.5 percent of GDP is still manageable, but the volatility in capital flows is bound to continue having an adverse effect on the rupee value. Moreover, he said the RBI may not stop further depreciation of the currency, but the move may have a dampening impact on growth prospects for 2025 onward”.

The Indian Rupee in 2025

The Indian economy together with its rupee currency experienced substantial changes in 2025 due to important events that included Trump's return as president, Budget 2025 announcements, decreasing interest rates, worsening geopolitical tensions and international trade barriers which created substantial financial instability throughout the year. The upcoming financial year demands analysis of major events that transformed India’s economic framework in 2024-25 because these developing situations demanded purposeful responses to address unpredictable situations. The economic shifts in this period appeared through the rupee's movement because the currency started the financial year at 83.36 rupees per dollar on April 1st 2024 and maintained stability at around 83 rupees throughout the first half of 2024-25 quarter.

According to a recent report, the Indian rupee strengthened for the ninth consecutive session, bolstered by a revival of foreign inflows and lower crude oil prices. The domestic currency opened 4 paise stronger at 85.94 against the US dollar after closing at 85.98, marking its best winning streak since January 2024. The rupee has appreciated by 1.83% in March so far, driven by a decline in the dollar index. It has decisively broken below the 86.00 mark and is poised to test strong support at 85.80 in the near term. However, sustained liquidity deficits and RBI interventions aimed at boosting forex reserves could push the rupee back toward the 86.50–86.60 range. According to Amit Pabari, managing director at CR Forex Advisors, any rebound may present selling opportunities, while favorable market conditions could propel the rupee toward 85.50.

Foreign institutional investors remained net buyers of Rs 7,470 crore from Indian equities on Friday, despite global funds pulling out Rs 1.44 trillion from domestic stocks this year. As the month, quarter, and year end approaches, some demand for the dollar-rupee pair is expected, with the RBI possibly squaring up its positions. Anil Kumar Bhansali from Finrex Treasury Advisors predicts the rupee will consolidate its gains before the next move, with a trading range of 85.80 to 86.30. Meanwhile, crude oil prices have slightly dropped, and global risk-on sentiment has risen, aided by reports suggesting that President Trump’s tariff actions may be more targeted than previously anticipated.

Final Note

Indian Rupee has recently strengthened it is set to lose most of this gain throughout the following year on the way to establishing new all-time low exchange rates against the US dollar. The Rupee achieved a 3% rise in a two-month period that concluded a five-month falling phase before it reached its March value of 85.5 per dollar for its most active performance since 2018 where it later demonstrated a 2.4% decrease across the financial year. The stability brought by good stock market performance and increased foreign funds cannot stop the ongoing withdrawal amounts. Forecasted trading levels for the Rupee fall within 85.0 and 85.8 due to market forces from capital inflows and United States economic statistics.