The rupee surged 0.9 per cent to witness its highest single-day gain in two months, since April 2, after the Reserve Bank of India (RBI) announced measures to attract foreign flows on Friday. It also marked the rupee’s third-highest single-day gain in the current calendar year.
The local currency settled at 94.94 per dollar, its highest level since May 8, against the previous close of 95.79 per dollar. With today’s gain, the Indian unit has almost erased its losses in 2026-27, with depreciation of 0.14 per cent against the dollar so far.
Market participants said that beyond the rupee’s initial gains, the local currency is expected to retain an appreciation bias over the coming quarter as the impact of the announced measures gradually translates into stronger capital inflows. This could potentially drive the rupee towards the 92-93 per dollar level.
“The rupee appreciated after the foreign inflow measures package was announced,” said a dealer at a state-owned bank. “The appreciation bias will continue and we may touch 92-93 per dollar in coming quarters,” he added.
However, market participants said that part of the capital flows that come in could be utilised by the RBI to reduce its forward book size, which might limit gains for the domestic unit. The central bank’s outstanding net short dollar position in the forward market stood at $95.30 billion at the end of April.
“We must caution that uncertain global conditions, along with the RBI’s large short forward dollar book (at $95 billion as of April 2026), could limit a sustained upside for the rupee. We anticipate that part of the capital flows that come in could be utilised by the RBI to reduce its forward book size, which could put a floor under the rupee. We expect the pair to consequently settle closer to the 95-96 level by fiscal year-end after a period of some gains,” HDFC Bank said in a report.
On the other hand, the yield on the benchmark 10-year government bond softened by 5 basis points during the day. However, it settled 1 basis point lower against the previous close at 6.98 per cent as traders sold bonds to book profits after the initial fall in yields.
“The market believes these inflows could help keep the rupee stable and reduce pressure on the RBI to raise interest rates in the near term, potentially allowing it to stay on hold for the next two to four months. The sell-off seen in the final hour of trading appeared to be largely driven by profit-booking after the initial rally,” said a dealer at a primary dealership.
Market participants said that the inclusion of the new 40-year FAR security is also a positive development. While the bond initially witnessed strong price action, those gains were not fully sustained through the session.
The rupee has depreciated 5.34 per cent in the current calendar year, whereas the yield on the benchmark 10-year government bond has hardened by 39 basis points during the same period.
