Rupee Rebounds on Fresh RBI Measures

The Indian rupee strengthened to around 95.82 per dollar, rebounding from near all-time lows as the Reserve Bank of India (RBI) introduced additional measures to curb depreciation pressures. Effective October 12, the central bank opened a special window to meet the entire daily dollar requirements of three state-owned oil companies, reducing a significant source of demand in the spot foreign exchange market. The RBI also tightened rules on foreign-exchange derivatives to curb speculative corporate activity and introduced a cash reserve requirement for current account transactions exceeding USD 2 million, raising the cost of hedging against further rupee weakness. The currency had fallen last week to 96.73 per dollar on Friday, approaching its all-time low of 96.96 hit in May.

The Indian rupee hovered near 96.68 per dollar, pausing recent losses as it neared all-time lows, supported by a pullback in the US dollar and Treasury yields, alongside persistent Reserve Bank of India intervention. The central bank’s sell-buy FX swaps, which involve selling dollars in the spot market and buying them back at a future date, have also helped slow the currency’s decline, although they have pushed forward premiums higher, making hedging costlier for foreign investors. However, elevated crude oil prices, foreign portfolio outflows, and lingering global bond yield pressures continued to weigh on the rupee, which remained close to its record low of 96.96 per dollar hit in May. Meanwhile, the RBI’s first rate hike in nearly four years is unlikely to reverse capital outflows, leaving the currency vulnerable to further depreciation.

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.