Rupee Strengthens After RBI Holds Rates

The Indian rupee strengthened to around 95.4 per dollar, recovering part of its recent losses as the Reserve Bank of India left its benchmark repurchase rate unchanged at 5.25% and unveiled a series of measures aimed at attracting foreign capital and supporting the currency. The central bank eased investment rules for overseas investors in government bonds and equities to boost dollar inflows and support the rupee. Despite raising its inflation forecast for the fiscal year ending March 2027 to 5.1% from 4.6%, the RBI maintained a neutral policy stance, signaling that it prefers to wait for greater clarity on inflation dynamics before considering further action. The decision underscored the RBI's preference for supporting growth and stabilizing the rupee through capital-flow measures rather than higher interest rates. However, elevated oil prices, Middle East tensions, and inflation risks continued to limit further gains.

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.