New Delhi: The Reserve Bank of India (RBI) intervened in the foreign exchange market on Monday to support the rupee after a sharp increase in global crude oil prices weakened market sentiment and pushed the Indian currency close to its record low against the US dollar.
According to market traders familiar with the developments, the central bank sold US dollars in both the onshore and offshore currency markets to curb excessive volatility in the rupee. While the RBI did not officially confirm the intervention, the move came amid mounting pressure on the domestic currency due to rising energy prices and increased demand for the US dollar.
Rupee slips near historic low
The Indian rupee weakened by as much as 0.2 per cent, touching ₹96.4575 against the US dollar during the trading session.
The currency moved close to its all-time low of ₹96.9650, which was recorded in late May.
The pressure on the rupee also affected the bond market, with the benchmark 10-year Government Security (G-Sec) yield rising by 4 basis points to 6.82 per cent, reflecting concerns over inflation and external economic pressures.
RBI steps in to stabilise currency
According to traders, the RBI sold US dollars in both domestic and offshore foreign exchange markets to contain excessive depreciation in the rupee.
The intervention was aimed at improving dollar liquidity and preventing sharp fluctuations in the exchange rate.
An RBI spokesperson did not immediately respond to media queries regarding the reported market intervention.
The central bank has frequently intervened in the foreign exchange market in recent years to reduce volatility rather than defend any specific exchange rate level.
Rising crude oil prices weigh on rupee
The latest weakness in the rupee comes as global crude oil prices have risen sharply over the past two weeks.
Brent crude climbed above USD 90 per barrel on Monday after gaining more than 20 per cent during the period.
The increase has largely been driven by escalating geopolitical tensions, particularly the continuing exchange of attacks between the United States and Iran, which has raised concerns over stability in the Middle East and global oil supplies.
As India imports a significant portion of its crude oil requirements, higher oil prices increase the country’s import bill and raise demand for US dollars, putting additional pressure on the rupee.
Earlier measures to support the rupee
The government and the RBI had earlier announced measures on June 5 to strengthen the Indian currency.
These included initiatives to encourage Non-Resident Indians (NRIs) to increase Foreign Currency Non-Resident (FCNR) deposits and relax certain investment norms for overseas investors in domestic bonds.
The objective was to attract greater foreign currency inflows and improve dollar liquidity in the Indian financial system.
Following those announcements, the rupee appreciated to around ₹94.1413 per US dollar in late June.
However, those gains have largely been erased as crude oil prices surged and demand for the US dollar strengthened.
Analysts see continued pressure
Market analysts believe the rupee is likely to remain under pressure if global crude oil prices stay elevated.
In a research note, strategists at Barclays, led by Mitul Kotecha, observed that the USD/INR pair continues to face upward pressure because of higher oil prices and increased dollar demand from importers.
They noted that while the RBI has taken steps to encourage FCNR deposits, the inflows have so far fallen short of expectations.
Financial institutions have also reportedly been encouraged by the government and the RBI to intensify efforts to attract foreign currency deposits from the Indian diaspora to strengthen the country’s external financial position.
With geopolitical uncertainties continuing to influence global energy markets, analysts expect the RBI to remain vigilant and intervene whenever necessary to ensure orderly movements in the foreign exchange market.