Rupee Steady at 95.64 as RBI Intervention Offsets Oil and Russian Supply Pressures
The Indian rupee opened slightly higher at 95.64 against the dollar, but persistent crude oil cost pressures and dwindling discounted Russian supplies threaten to widen India's trade deficit and weigh on the currency.
The Indian rupee opened 7 paise higher at 95.64 against the US dollar on Friday, maintaining a narrow 30-paisa trading range observed throughout the week. This relative stability is largely artificial, driven by Reserve Bank of India intervention rather than fundamental economic strength.
Elevated crude oil prices remain the primary headwind for the currency. Geopolitical tensions in the Middle East have disrupted over 20 percent of the region's refining capacity, pushing crude prices above $93 per barrel. Concurrently, global oil inventories have been drawing down at a rate of 3.5 million barrels per day since March.
India faces an additional supply shock as access to discounted Russian crude tightens. China has increased its purchases to offset reduced Iranian supplies, causing India’s Russian crude imports to fall to an estimated 1.87 million barrels per day in August, down from 2.79 million in July. With India relying on imports for over 85 percent of its crude needs, this shift threatens to inflate import costs and widen the trade deficit.
The central bank has attempted to cushion the currency through aggressive foreign currency mobilization. RBI Governor Sanjay Malhotra noted that recent measures have already attracted $56.85 billion, including $52.3 billion via FCNR(B) deposits, toward an $80 billion target.
However, these inflows have failed to spark meaningful rupee appreciation, contrasting sharply with the 2013 mobilization cycle. Market experts attribute this to persistent macroeconomic headwinds and a structural decline in foreign investor participation. Foreign ownership of Indian equities has sunk to a 17-year low.
Furthermore, India’s weight in the MSCI Emerging Markets Index has plummeted from roughly 21 percent in September 2024 to below 12 percent, muting the impact of fresh dollar inflows. Amit Pabari, managing director at CR Forex Advisors, noted that while a softer US dollar provides temporary relief, elevated crude prices and geopolitical risks maintain downward pressure on the rupee.
Market participants expect the central bank to continue anchoring the currency to discourage speculative flows. Nevertheless, with immediate support holding at 95.30 to 95.50, the USD/INR pair is projected to gradually drift toward the 96.20 to 96.50 range, with any downward dips likely to prove short-lived.
