The report from Bank of Baroda said that FPIs, spot interventions of RBI and changes in the forwards segment are significant when explaining currency shifts.
"But often there is intervention through sale and purchase of dollars, which does dilute the statistical relationship," the bank said after a study of monthly data.
In December, FPIs were net sellers in nine of 11 trading days. The bank suggested that the rupee may remain volatile until a deal with the US is reached, possibly by March 2026. However, it noted that this is a sentiment-based factor and not an economic one.
Daily current‑account flows, including IT receipts or remittance payments, and capital flows such as foreign direct investment and external commercial borrowings, also affect the market but are not captured daily, limiting direct linkage to rupee moves, the bank said.
The bank noted that the external account "appears to be fairly steady with the current account in check," adding that capital flows — particularly FPI flows — could be the decisive factor, with the “shadow of the deal” between India and the USA guiding market decisions.
The report also said the trade deficit shows no notable bearing on short‑term rupee changes.
Another recent report by Bank of Baroda said that India’s retail inflation is expected to remain well under control in the third quarter of FY26, with headline CPI inflation likely to settle at 0.4 per cent, slightly lower than the Reserve Bank of India’s projection of 0.6 per cent.
The bank said easing food prices and stable core inflation have continued to provide relief to consumers despite some recent sequential rise in vegetable prices.
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