Rupee Extends Losses on Outflows

The Indian rupee edged lower to around 95.7 per dollar, extending losses as sustained foreign capital outflows and broader weakness across Asian markets dampened investor sentiment. Pressure on the currency intensified after foreign investors offloaded nearly $600 million in Indian equities on Wednesday, following approximately $3 billion in net sales over the preceding three sessions. Renewed US-Iran tensions further weighed on risk appetite, while conflicting signals on potential de-escalation kept markets on edge. Some support for the rupee could come from efforts to attract overseas capital, with reports suggesting the government is considering scrapping capital gains tax on foreign portfolio investments in government securities. Investors are also awaiting the Reserve Bank of India's policy decision, where the central bank is widely expected to keep its benchmark interest rate unchanged at 5.25%.

The Indian rupee fell to around 95.5 per dollar, retreating from multi-week highs as renewed Gulf tensions lifted crude oil prices. Market pressure intensified after US-Iran diplomatic efforts failed to make progress, while reports indicated that Iranian missile attacks targeting Bahrain, Kuwait, and other regional locations were either intercepted or unsuccessful. The escalation contributed to a third straight daily increase in oil prices, with Brent crude advancing 1% to nearly $97 per barrel. At the same time, continued foreign portfolio outflows added to the rupee's weakness as foreign investors were net sellers of more than $800 million worth of Indian equities on Tuesday. Attention is now turning to the RBI's policy meeting on Friday. While most economists expect interest rates to remain unchanged, markets have increasingly begun pricing in the possibility of future tightening as policymakers navigate inflation risks from higher oil prices.

The Indian rupee strengthened to around 94.7 per dollar, reaching three-week highs as sustained intervention by the Reserve Bank of India boosted confidence in the currency. Expectations that the central bank will continue to curb excessive exchange-rate volatility ahead of its upcoming policy decision also supported sentiment. Markets are now focused on the RBI's policy meeting, where the benchmark repo rate is widely expected to remain unchanged at 5.25%. Investors will closely watch the central bank's updated inflation and growth forecasts, as well as any signals on measures to attract foreign capital and support external financing conditions. However, the rupee's gains were limited by renewed geopolitical tensions in the Middle East, which pushed Brent crude above $93 per barrel. Meanwhile, uncertainty surrounding US-Iran negotiations and continued foreign portfolio outflows from Indian equities capped further appreciation.