Tag Archives: RBI POLICY

Rupee Nears Record Low as RBI Intervention Counters Dollar, Oil Pressures

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The Indian rupee edged higher on Friday as intervention by the Reserve Bank of India (RBI), a weaker US dollar and falling global crude oil prices helped slow its slide towards a record low. Persistent pressure from oil imports, foreign portfolio outflows and geopolitical uncertainty, however, continues to weigh on the currency.

The rupee rose 0.2% to ₹96.61 per US dollar on Friday, October 9, after the central bank intervened in the foreign exchange market around the ₹96.80 level to prevent the currency from approaching its previous record low of ₹96.96, reached in May, Reuters reported.

The recovery followed a difficult week for the currency after the RBI raised its benchmark repo rate by 25 basis points to 5.50% on Wednesday and shifted its policy stance from neutral to calibrated tightening. The rate increase was the first since February 2023.

The latest currency movement highlights the challenge facing the central bank: tighter monetary policy and foreign exchange intervention can help stabilise the rupee, but they cannot eliminate the external pressures driving demand for dollars.

RBI Intervention Buys Time as External Risks Persist

The RBI has maintained a presence in the currency market over recent sessions to limit the rupee’s depreciation. Traders cited intervention near ₹96.80 on Friday, while the softer dollar and lower US Treasury yields provided additional support.

A weaker dollar generally offers some relief to emerging-market currencies by reducing the cost of dollar-denominated obligations and easing pressure on capital flows. Falling US Treasury yields can also make dollar assets relatively less attractive, depending on the broader interest-rate outlook and investor risk appetite.

However, India’s currency remains vulnerable to sustained foreign portfolio outflows, elevated oil prices and uncertainty surrounding the conflict involving Iran.

The rupee has been among Asia’s weaker-performing currencies this year, reflecting the combined impact of global financial conditions and India’s exposure to energy-import costs. A fresh record low could also reinforce negative market sentiment and increase demand for hedging against further depreciation.

The RBI’s intervention is therefore aimed at limiting disorderly movements rather than guaranteeing a particular exchange rate. The sustainability of the rupee’s recovery will depend partly on whether external conditions improve and foreign exchange demand moderates.

Crude Oil and US-Iran Talks Remain Critical for Rupee

Oil prices are a central variable for India’s currency outlook. As one of the world’s largest crude importers, India needs substantial dollar payments to purchase energy from overseas suppliers. Higher crude prices can increase the import bill, widen the trade deficit and add to domestic inflationary pressure.

Brent crude fell about 1.5% on Friday after US President Donald Trump said Washington would not launch military action against Iran before the US midterm elections, citing progress in discussions aimed at ending the conflict.

The decline in oil prices, combined with a softer dollar and lower US Treasury yields, supported the rupee and other Asian currencies.

But the relief could prove temporary if negotiations stall, oil supplies are disrupted or global bond yields rise again. Any sustained increase in crude prices would complicate the RBI’s efforts to manage currency volatility while containing inflation.

For Indian households, a persistently weak rupee can raise the domestic cost of imported goods and overseas expenses, including foreign education and travel. Import-dependent businesses may also face higher input costs, while exporters and recipients of remittances in dollars can benefit from the conversion of foreign earnings into rupees.

The immediate focus for currency traders remains the RBI’s intervention, movements in the dollar and US Treasury yields, foreign investment flows and developments in the Middle East.

Friday’s gain offers the central bank some breathing room, but it does not yet establish a durable reversal in the rupee’s broader downward trend.

BREXIT Fall Out: PM Cameron to Quit in October

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Now that the UK has done what was expected in the last one decade, exiting from the European Union, Britain’s Prime Minister David Cameron has decided to quit from the office in October as the referendum went against his wish to continue in the Union.

In India, the government’s reaction is on expected lines that the economy has enough "firepower" to deal with the situation, and that the Reserve Bank of India (RBI) has been "working" on possible eventualities and the Economic Affairs Secretary Shaktikanta Das was upbeat on fundamentals. But let us face it — grim future ahead and perhaps another prolonged period of uncertainty and recession.

The BSE Sensex lost 1,050 points and investors have lost Rs.4 lakh crore in one day. The rupee touched the 68-mark, down by nealry one rupee in one day, indicating its weakness in a globally turbulent economy. "You know the pound sterling have been depreciating so all currencies have been depreciating," defended Das. With $360 billion in foreign exchange reserves with RBI, he said India’s position "is very sound and solid."

While the knee-jerk reaction is likely to cool in a coule of weeks, for Britain the changes will not be overwhelming as it had always played an outsider role within the European Union. Unlike other members, it had kept its currency, the pound sterling in tact and never joined the Schengen zone of passport-free travel in Europe. Its contribution to EU budget is also relatively less than others.

The pound sterling may see downward movement for sometime and so is India’s rupee but for the reality of entirely breaking away from the European Union may take about two years, if the current David cameroon’s government gives its consent and goes ahead with the referendum’s outcome to exit from EU. So, these two years will be sufficient for India to move closer to the UK both in terms of trade treaty and negotiate more opportunites.

While the immigration was a major cause of worry for Indians in Britain, they can breathe easy now with the exit plan putting a cap on 100,000 immigrants per annum taking concrete shape as no more EU immigrants can enter Britain so easily now. With the immigrants stopped from elsewhere, India may leverage the opportunity for a more favourable immigration policy with the UK.

Finally, the oil prices will fall following Brexit and it will squarely put in more reserves in RBI kitty. "So when oil prices decline, Indian economy benefits," said another Indian Finance Ministry official.

UK PM David Cameron to Resign in October.