Rupee Weakens as RBI Shortens FX Swap Window

The Indian rupee weakened to around 95.49 per dollar, reaching two-week lows as the Reserve Bank of India unexpectedly shortened the deadline for its discounted forex swap facility for non-resident deposits, raising concerns over future dollar inflows. The RBI brought forward the cutoff for the zero-cost hedging facility for FCNR(B) deposits to August 31 from September 30, despite more than $50 billion in inflows through the scheme. The move weighed on sentiment as elevated oil prices continued to pressure the currency and importer hedging demand remained strong. The rupee's decline came despite a softer dollar following weak US retail sales data, which reduced expectations of a Federal Reserve rate hike next month. Meanwhile, the RBI continued selling dollars through state-run banks to cushion the rupee, while stronger foreign-exchange reserves, which rose to a four-month high of $707 billion through August 7, provided the central bank with greater room to support the currency.

The Indian rupee hovered around 95.4 per dollar, edging higher after steadying in the previous session as a pullback in oil prices offered some relief. Brent crude fell more than 2% on Thursday to around $86.50 a barrel, despite a US threat to maintain a naval blockade of Iranian ports indefinitely. However, persistent dollar demand from importers and maturities in the non-deliverable forward market continued to weigh on the rupee, while near-daily intervention by the Reserve Bank of India helped cushion its decline. Meanwhile, market participants assessed the RBI's proposed loan interest-rate framework, which could provide longer-term support by strengthening monetary-policy transmission and improving pricing transparency. The rules would link floating-rate personal and MSME loans to external benchmarks, including the RBI's repo rate, but would take effect only from April 2027 if finalized.

The Indian rupee hovered around 95.42 per dollar, edging lower after briefly stabilizing in the previous session as higher oil prices and persistent dollar demand weighed on the currency. Brent crude rose 5% on Monday, moving closer to $88 a barrel, as uncertainty over a US-Iran peace deal reduced hopes of an agreement to reopen the Strait of Hormuz. The latest setback came after US President Donald Trump rejected Iran’s demands for compensation and instead called for Tehran to compensate for deaths linked to past conflicts and attacks. Domestically, strong dollar demand from importers and hedging activity continued to weigh on the currency. The Reserve Bank of India likely continued intervening in the foreign exchange market, with state-run banks seen selling dollars on its behalf, helping absorb some of the demand and limiting the rupee's decline. Meanwhile, the rebound in oil prices pushed the US 10-year Treasury yield to around 4.70%, providing additional support to the dollar.