In November, the Indian rupee’s real effective stability was maintained despite depreciation against the US dollar. This stability was attributed to higher prices in India compared to its major trading partners, as reported in the Reserve Bank of India’s December Bulletin. The rupee faced pressure from a strong US dollar, limited foreign portfolio flows, and uncertainties related to the India-US trade deal.
The volatility of the Indian rupee, indicated by higher prices in the coefficient of variation, decreased in November compared to the previous month. However, the rupee depreciated by 0.8% against the US dollar by mid-December. Net foreign portfolio investment (FPI) saw outflows in 2025-26, particularly in the equity segment, with December marking a shift to negative FPI flows after two months of inflows.
External commercial borrowings (ECBs) activity slowed down during April–October 2025, with net inflows lower than the previous year. The purpose of a significant portion of the ECBs was for capital expenditure. India’s current account deficit improved in Q2 2025-26 due to a reduced merchandise trade deficit, strong services exports, and robust remittance receipts. Despite this, net capital inflows fell short of current account financing needs, resulting in a decline in foreign exchange reserves.
India’s foreign exchange reserves, although depleted due to the shortfall in capital inflows, are still considered adequate. These reserves cover over 11 months of goods imports and more than 92% of the external debt outstanding, according to the RBI.
