Our Bureau: The rupee is expected to trade within a narrow range of 94.50 and 96.50 over the medium term, as stepped-up Reserve Bank of India (RBI) interventions and stronger-than-expected dollar inflows via the FCNR(B) scheme have helped curb volatility.

Average monthly volatility has fallen to around 20 paise from nearly 40 paise in June, Bloomberg data showed.

The RBI's sizable foreign exchange reserves of $785 billion and increased market presence have also strengthened traders' confidence that the central bank will step in to limit sharp rupee depreciation, keeping expectations for near-term volatility subdued.

"We see a broad two-rupee range - 94.50 to 96.50 - over the near term. The RBI won't let the rupee appreciate, and they have enough ammunition to defend weakness too. Speculators are out of the market because of NOP curbs, so the liquidity too is very thin in FX these days, while any imbalance is taken care of by the central bank," said Sajal Gupta, head of forex and commodities at Nuvama.

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Anindya Banerjee, head of currency research, Kotak Securities, concurred.

"The RBI has extra firepower, so the daily range would be contained. Volatility will only increase if oil prices jump over $115-$120 per barrel," he said.

The RBI has maintained a near-daily presence in the foreign exchange market for more than a month, broadly defending a level on any given day. While that level shifts from day to day, the moves have generally been gradual, prompting traders to gauge where the central bank is likely to step in and position accordingly.

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"There is usually a level where the RBI sells dollars, traders try to figure it out and that becomes a level where traders sell too. They won't take a position beyond that level as they know the RBI will intervene. For instance, that level was at 95.95 on Tuesday," said Anil Bhansali, head of treasury, Finrex Treasury Advisors.