Mumbai: The Indian rupee is likely to remain stuck in a narrow band as foreign outflows and strong demand for dollars from importers continue to weigh on the currency. Traders say the Reserve Bank of India is keeping a close watch on the market and is preventing the rupee from slipping beyond the 88.80 level against the US dollar.

The rupee has been trading in a very tight range in recent weeks, with only small day to day movements. This limited volatility is mainly due to steady intervention by the central bank, which is offering support whenever the currency moves close to key levels.

Foreign portfolio investors have pulled out large sums from Indian equities this year, adding pressure on the rupee. Nearly one billion dollars has left the market this month alone, and total outflows for the year have reached about seventeen billion dollars. At the same time, importers are buying more dollars to meet payment requirements, especially for crude oil and other essential goods. Exporters, however, are not hedging their earnings as much as before, leading to less dollar supply in the market.

Analysts say the imbalance between importers and exporters has increased the rupee's dependence on the central bank. With the US dollar remaining strong globally, the Indian currency has little room to strengthen unless there is a change in market sentiment or improvement in foreign inflows.

Market participants are also watching the progress of the ongoing discussions on a possible trade agreement between India and the United States. Any positive development is expected to boost investor confidence and could help ease pressure on the rupee.

For now, traders expect the rupee to move within a narrow range, supported by the central bank but still facing steady pressure from global factors and domestic demand for dollars.