Indian Rupee Rises to 2-Week High

The Indian rupee strengthened to around 95.4 per dollar, extending its rally for another session to a two-week high as sentiment improved on easing crude oil prices and supportive remarks from the Reserve Bank of India. Support for the rupee increased after Brent crude prices fell below $100 per barrel for the first time in over two weeks amid optimism that the US and Iran are moving closer to a peace agreement. Sentiment was further boosted after Sanjay Malhotra stated that the RBI would do “whatever is required” to ensure orderly forex market movements, adding that the rupee appears undervalued. He also said the central bank has around $700 billion in reserves to curb volatility. However, gains in the rupee were partly limited by persistent inflation concerns after India’s state-owned fuel retailers raised petrol and diesel prices for the fourth time in May to offset losses stemming from higher costs linked to the Iran conflict.

The Indian rupee strengthened to 95.9 per dollar from the record-low of 97.15 on May 19th after the Reserve Bank of India continued to intervene on currency markets and support the currency from it's slide this year. The central bank sold dollars to state banks through the third week of the month. This outweighed the outflows of foreign exchange, initially stemming from energy importers following the surge in oil prices due to the war in the Middle East, then magnified by selling from Indian equity and bond investors that wanted to reduce rupee positions. Besides selling dollars, officials from the RBI reportedly considered hiking interest rates, as soon as next meeting, to prevent further deprecation and risks to the foreign currency reserves. However, a group of policymakers also advocated against raising rates, opting instead for more currency interventions and policy to stimulate dollar inflows.

The Indian rupee hovered around 96.2 per dollar, stabilizing after a nine-session slide as markets assessed central bank intervention and broader weakness in Asian currencies. Despite yesterday’s rebound, sentiment remained cautious, with traders expecting renewed pressure on the currency amid persistent dollar strength. Softer crude oil prices, however, offered some support to the rupee. Earlier, the Reserve Bank of India intervened aggressively through substantial dollar sales before markets opened and continued support throughout the trading session. Investors are now watching closely to see whether the RBI maintains its defense of the currency. Without sustained intervention, analysts expect importer and hedging demand for dollars to re-emerge, potentially limiting further gains. Meanwhile, most Asian currencies remained under pressure as the dollar index hovered near a six-week high, supported by resilient US economic data and elevated Treasury yields.