Reserve Bank of India holds rupee at 95.45 as crude oil prices climb
The Reserve Bank of India is actively selling dollars to cap rupee depreciation at 95.45 as rising crude prices and impending foreign deposit closures threaten to increase demand for US currency.
The Indian rupee closed at 95.42 against the US dollar on Friday, sitting just below the critical 95.45 threshold that the Reserve Bank of India has been actively defending. To maintain this narrow trading band of 95.17 to 95.45 over the past five sessions, the central bank sold dollars every single day.
The aggressive intervention comes as energy markets face renewed volatility. Brent crude futures for October delivery have climbed nearly 6 percent in a week to around $89 a barrel amid a fragile truce in West Asia.
Higher energy costs typically widen India’s trade deficit and drive massive dollar demand from domestic importers and oil companies. This structural pressure on the local currency is forcing market participants to closely monitor the central bank's daily liquidity operations.
"I expect the RBI to come in," said Anil Bhansali, head of treasury at Finrex Treasury Advisors, referencing the central bank's recent defense of the currency. He noted that dealers are in a wait-and-watch mode, adding that there will be massive dollar demand from importers and oil companies, and positions will be taken depending on the intervention.
The currency defense coincides with the final stretch of a special foreign currency non-resident deposit mobilization drive. The central bank has unexpectedly moved to close this deposit window on August 31, a full month earlier than initially planned.
Despite attracting $52 billion in inflows over the past month and a half, the special deposit scheme has had a muted impact on the exchange rate. The rupee, which recently traded near lows of 97 to the dollar, remains on a broader depreciating trajectory for the current fiscal year.
Market participants anticipate a pickup in deposit inflows over the remaining two weeks, though analysts remain skeptical about its ability to offset energy costs. Anindya Banerjee, head of currency research at Kotak Securities, stated that while an appreciation toward 94 is possible, it relies entirely on crude prices cooling to the $70 range.
Banerjee observed that while flows historically pick up near the deadline, the lack of material exchange rate effects so far leaves the final outcome uncertain. He questioned what difference the remaining inflows would make given the muted market reaction to date.
