The Indian rupee remained largely steady against the dollar on Monday as suspected intervention by the Reserve Bank of India helped absorb demand for the U.S. currency and cushion the impact of higher oil prices.
The rupee was trading at 95.25 per dollar at 11:30 a.m. IST, little changed from Friday’s close of 95.2075. The currency has remained close to the 95-per-dollar mark in recent sessions, with traders convinced that the RBI is prepared to prevent a sharp weakening.
State-run banks were seen offering dollars in the market, which traders said was likely on behalf of the central bank. The activity was similar to intervention seen over recent sessions and has helped keep the rupee on the stronger side of 95.50 since the end of July.
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“There are consistent (USD) offers” from state-run banks, a trader at a private bank said, adding that the activity suggested the RBI was not currently willing to allow the rupee to weaken significantly from prevailing levels.
The change in the central bank’s market presence has also altered trading expectations. Earlier, sporadic intervention had left market participants uncertain about the level of rupee weakness the RBI would tolerate. More persistent dollar selling by state-run banks is now giving traders a clearer indication that policymakers are prepared to lean against downward pressure on the currency.
The intervention was heavy-handed because several forces were working against the rupee on Monday.
Oil prices were higher, with Brent crude hovering around $85 a barrel as uncertainty persisted over the reopening of the Strait of Hormuz. Iran has said the United States must meet several conditions before the strategic waterway can reopen, while Tehran and Oman have moved toward an agreement on alternative shipping lanes.
For India, sustained high oil prices pose a direct risk to the currency because the country relies heavily on imported crude. More expensive oil increases the country’s import bill and typically raises demand for dollars from Indian refiners and importers, putting additional pressure on the rupee.
The impact of oil was partly offset by the RBI’s dollar sales, while demand for the U.S. currency linked to maturing non-deliverable forward contracts provided another source of pressure.
Traders were also watching dollar demand around the RBI’s daily reference rate. The benchmark is used to settle a range of currency contracts and can attract concentrated flows from market participants seeking to manage or settle their positions.
The combination of these flows could have pushed the rupee lower in the absence of intervention. Instead, the currency remained within a narrow range, suggesting that the RBI’s market activity is currently strong enough to absorb a meaningful portion of the demand for dollars.
“The 95.00-95.10 zone should continue to act as a solid floor for the (USD/INR) pair,” said Amit Pabari, managing director at foreign-exchange advisory firm CR Forex.
That level is becoming an important test for the currency. A sustained move below 95 per dollar would signal stronger rupee momentum and potentially force traders to reassess expectations for the RBI’s preferred trading range. Conversely, repeated failure to break below the area could encourage traders to continue positioning for a relatively stable rupee.
The central bank’s approach also highlights the delicate balance it faces. Allowing the rupee to weaken too rapidly could increase the domestic cost of imported commodities, particularly crude oil, while excessive intervention could require the RBI to deploy more of its foreign-exchange reserves.
The RBI therefore has an incentive to smooth volatility rather than defend a rigid exchange-rate level. The recent pattern of dollar sales, however, suggests that policymakers are currently placing greater emphasis on limiting downward pressure on the rupee.
Global markets provided a relatively supportive backdrop. Asian currencies traded mixed on Monday, while regional equities advanced as investors reduced bets on imminent U.S. Federal Reserve rate increases. A less aggressive outlook for U.S. monetary policy can reduce some of the pressure on emerging-market currencies by limiting the dollar’s appeal and improving demand for riskier assets.
For the rupee, however, domestic and regional factors remain more important in the near term. Analysts expect oil prices, importer demand, portfolio flows and the RBI’s willingness to intervene to determine whether the currency can consolidate around current levels.
However, the immediate focus will be on whether the RBI maintains its recent presence as crude prices remain elevated and dollar demand rises around contract settlements. If those pressures persist, continued central bank intervention could keep the rupee close to 95 per dollar.