Rupee Under Pressure Despite RBI Hike

The Indian rupee hovered around 96.58 per dollar, near record lows, weighed by a firmer dollar, higher global bond yields, and continued foreign equity outflows. Brent crude also climbed above $101.50, adding to concerns over India’s import costs and weighing on emerging-market inflows. The decline was partly cushioned by the RBI’s 25-basis-point repo rate hike to 5.50%, the highest in a year and its first since February 2023. The move was in line with expectations and came as the central bank shifted its policy stance to “calibrated tightening” amid rising inflation risks. The RBI has also been using reverse repo operations, open-market bond sales and sell-buy FX swaps to drain excess liquidity, while state-run banks were seen as likely intervening to support the rupee.

The Indian rupee weakened to around 96.4 per dollar, hovering near record lows after trading flat in the previous session as a stronger US dollar, elevated US Treasury yields and high oil prices increased dollar demand. The dollar index climbed above 102, supported by weakness in the euro amid political and fiscal concerns in the euro zone, while 10 and 30 year US Treasury yields rose to fresh 24 year highs. Meanwhile, foreign equity outflows and persistent importer demand for dollar hedges continued to weigh on the currency, with Indian companies booking a record $77 billion in currency hedges in September, up more than 80% year-on-year. The Reserve Bank of India continued selling dollars to temper the rupee’s decline, although traders expect it to smooth the fall rather than defend a specific level.

The Indian rupee hovered around 96.3 per dollar, pausing losses after reaching two-month lows as softer oil prices and fading bets on a Federal Reserve rate hike this month offered some relief to the currency. Oil prices slipped as rising crude exports from the Middle East and stockpile releases by Group of Seven nations eased supply concerns, while weaker-than-expected US jobs data reduced the probability of a Fed hike to around 20%. However, the dollar remained firm near a 17-month high and elevated US Treasury yields continued to weigh on the rupee. The RBI remained a consistent presence in the foreign exchange market, helping contain the rupee’s decline, although the decisive breach of the 96-per-dollar level has heightened the risk of further weakness. Meanwhile, markets are increasingly pricing an RBI rate hike this week as inflationary pressures broaden, with consumer inflation at 4.82% in August and growth at 7.8% in Q2.