Rupee slides to 96.45 as oil surge and weak deposit inflows test RBI

The Indian rupee closed at 96.45 against the US dollar on Monday, its weakest level in two months, prompting the Reserve Bank of India to sell dollars aggressively to prevent a slide toward its all-time low. Traders noted that the central bank stepped in with solid dollar sales once the currency breached the 96.50 threshold. The currency had closed the previous week at 96.28.

The immediate pressure on the rupee stems from a sharp reversal in crude oil prices. Brent crude has climbed nearly 9% to $82.56 a barrel since July 10, hitting an intraday peak of $91.42 on Monday before easing to around $87. The price spike is driven by mounting fears that peace talks between Tehran and Washington could collapse. That risk echoes the geopolitical tensions in late May, which pushed Brent to a peak near $126 before prices cooled to $72 in June.

For a heavily oil-importing economy, rising energy costs translate directly into elevated dollar demand. Dealers reported that state oil companies and general importers were actively purchasing dollars on Monday amid broader risk aversion. "The market's focus will remain firmly on global crude oil prices, the strength of the US dollar, the pace of importer hedging demand and the intensity of central bank interventions," said Kunal Sodhani, head of treasury at Shinhan Bank India.

Compounding this oil-driven stress is a notable shortfall in expected foreign capital. Banks had initially anticipated up to $70 billion in inflows through a special foreign currency non-resident bank (FCNR-B) deposit window before it closes on September 30. Instead, institutions have grown cautious as those deposits fail to materialize at the necessary scale to offset the current account pressures.

"FCNR(B) deposits don't seem to be coming in a large way, causing problems for the rupee. However, I still expect the RBI to intervene aggressively, especially around record low levels," said Anindya Banerjee, head of currency research at Kotak Securities. "If oil prices don't fall, the central bank will be tested," Banerjee added.

The rupee's lifetime intraday low stands at 96.96, set on May 20, while its record closing low is 96.83. The RBI had successfully guided the currency back to around 94.30 levels in June after deploying multiple stabilization measures during the spring selloff. Looking ahead, Sodhani projected a continued downward bias for the local unit, noting: "Broadly, a 95.80-96.90 range is likely for the week."