Rupee Holds Tight at 35 Paise Range as RBI's $8 Billion Intervention Caps Volatility 

Mumbai, Aug 29: Indian rupee ended its trading week with a slight weekly appreciation but stayed stubbornly range-bound for the 11th straight session. The rupee moved inside a 35-paise band during the week on aggressive interventions by the central bank in the forex markets to cap both upward and downward moves. 

The rupee started the week at 95.64 to the US dollar on Monday and ended at 95.3775 on Friday, appreciating 0.3%. This range-bound move happened amid the presence of several global and domestic crosscurrents, which included rising crude oil prices, geopolitics involving Iran, strong foreign currency flows into the country through the FCNR-B deposits and dollar buying by importers. 

Rupee Opens Week at 95.64 Before Settling Lower at 95.74 as Dollar Strengthens 

The trading week commenced on Monday, 24 August, with the rupee opening on a stronger footing at 95.64 against the US dollar, appreciating by six paise or 0.1% from its previous close of 95.70 on Friday. A decline in crude oil prices provided early support to the domestic currency, with Brent crude trading 1.4% lower at $91.37 per barrel. India, which imports over 85% of its crude oil requirements, typically benefits from lower oil prices as refiners and oil companies require fewer US dollars to purchase cheaper oil. 

However, the early gains proved short-lived. By the end of Monday’s session, the rupee had pared its initial appreciation and settled 3 paise lower at 95.74 (provisional) against the US dollar. The reversal was driven by a positive American currency, with the dollar index trading 0.18% higher at 98.98, and weak domestic markets, as the Sensex fell 171.72 points to settle at 77,369.11 and the Nifty declined 32.95 points to 24,219.05.  

Forex traders noted that the USD/INR pair traded in a narrow range as rising Brent crude prices, persistent importer demand, and cautious sentiment over new US sanctions targeting Iran weighed on investor sentiment. The rupee touched an intraday high of 95.64 and a low of 95.75 during the session. Foreign institutional investors offloaded equities worth ₹542.71 crore on a net basis on Friday, 21 August, adding to the bearish pressure. 

Rupee Surges 26 Paise to 95.44 as Crude Oil Plunges Below $90 and Dollar Weakens 

Tuesday, 25 August, witnessed a dramatic reversal in the rupee’s fortunes, as the domestic currency staged a sharp recovery in the final trading hours. The rupee pared its initial losses and settled 26 paise higher at 95.44 (provisional) against the US dollar. At the interbank foreign exchange, the rupee opened at 95.74, touched an intraday high of 95.40, and finally settled at 95.44. 

The primary drivers behind this robust appreciation were threefold. First, the dollar index declined marginally by 0.04% to 98.96, reflecting overall weakness in the US currency on declining odds of a rate hike. Second, Brent crude prices plunged 2.99% to trade at $89.41 per barrel in futures trade, providing significant relief to the import-dependent economy.  

Third, domestic equity markets posted strong gains, with the Sensex climbing 286.98 points to settle at 77,656.09 and the Nifty advancing 115.50 points to 24,334.55. Foreign institutional investors turned net buyers, purchasing equities worth ₹1,181.66 crore on a net basis on Monday. 

On the domestic macroeconomic front, the Reserve Bank of India’s special USD-INR forex swap facility for FCNR(B) deposits, Overseas Foreign Currency Borrowings and External Commercial Borrowings had mobilised foreign exchange inflows of $73 billion as of 21 August, reflecting strong backing from Non-Resident Indians. The USD/INR pair remained largely range-bound around 95.50–96.00, with oil prices and RBI intervention likely to remain the key near-term drivers. 

Currency Markets Closed on Wednesday for Id-e-Milad as Rupee Holds at 95.44 

The Indian foreign exchange market remained closed on Wednesday, 26 August, on account of Id-e-Milad. The rupee’s previous closing rate of 95.44 against the US dollar, established on Tuesday, stood as the reference point for the holiday.  

During this period of domestic market closure, global developments continued to unfold, including the release of hotter-than-expected US PCE inflation data and ongoing geopolitical tensions surrounding the Strait of Hormuz. However, the impact of these events on the rupee would only be reflected when trading resumed on Thursday. 

Foreign institutional investors purchased equities worth ₹502.63 crore on a net basis on Wednesday, according to exchange data. The rupee’s stability during this period, despite the market closure, underscored the underlying resilience provided by the substantial FCNR-B inflows that had been channelled into the banking system. 

Rupee Opens Flat at 95.44 on Thursday Before Settling 11 Paise Lower at 95.55 

As currency markets reopened on Thursday, 27 August, the rupee began trade on a largely flat note, opening at 95.44 against the US dollar. However, the session witnessed significant volatility, with the rupee ultimately paring its initial gains and settling 11 paise lower at 95.55 (provisional) against the US dollar. 

The depreciation was attributed to a stronger American currency and weak domestic markets, according to forex traders. The dollar index climbed to a one-week high, exerting downward pressure on the rupee. On the NSE, USD/INR futures ended marginally higher at 95.75. The rupee traded in a narrow 6-paisa range during the session, reflecting the continued presence of the RBI in the market, stabilising the currency through dollar sales. The rupee opened at ₹95.50 per dollar, hit a low of 95.52, before recovering back to a high of 95.40 during the day. Foreign institutional investors offloaded equities worth ₹298.26 crore on a net basis on Thursday, adding to the bearish pressure. 

Rupee Ends Week at 95.38 as Late-Session Dollar Supply Triggers Sharp Reversal 

Friday, 28 August, proved to be a day of two distinct halves for the rupee. The domestic currency opened at 95.54 against the greenback before slipping further to 95.55, down 10 paise from its previous close, weighed by FII outflows and sustained disruptions in global crude oil supplies. However, a marginally weaker greenback and a fall in global crude oil prices to levels below $90 per barrel prevented a sharper decline in the local unit. The dollar index was trading at 99.14, lower by 0.01%, while Brent crude was trading 0.48% lower at $89.27 per barrel. 

In a dramatic afternoon reversal, the rupee surged to end at 95.3775, up 0.2% from Thursday’s close of 95.54. This sharp appreciation was driven by a spurt of dollar liquidity ahead of the closing of a special deposit window. The Reserve Bank of India’s discounted non-resident dollar deposit scheme ends on Monday, 31 August, and deposit-related dollar inflows triggered stop-losses and unwinding in positions betting on rupee weakness. Month-end importer dollar demand weighed on the local currency early in Friday’s session, but flows ahead of MSCI index rebalancing, due on 31 August, and some offers from state-run banks led to a sharp reversal in the pair. The rupee ended the week with a 0.3% gain against the dollar. 

RBI Sells Over $8 Billion to Keep Rupee in Narrow 35-Paise Range for 11 Sessions 

The defining feature of the rupee’s performance over the week was the Reserve Bank of India’s aggressive and sustained intervention in the foreign exchange market. The RBI stepped up its intervention in recent sessions, with the central bank estimated to have sold more than $8 billion in the spot and offshore markets, according to traders. The rupee has stayed within a 35-paise range for the past 11 trading sessions. 

The intervention followed similar activity reported on 24 and 25 August and sustained intervention through the previous week. The RBI’s actions came even as foreign currency inflows picked up sharply following incentives for FCNR-B deposits. The measures had attracted $72.85 billion as of 21 August, of which FCNR-B deposits accounted for $65.40 billion. 

The situation differs markedly from 2013, when the FCNR-B scheme led to an immediate appreciation in the rupee. This time, the inflows have come amid elevated crude prices, global yield differentials and continued dollar demand from importers, limiting their impact on the currency. Rather than allowing these inflows to trigger a sharp rupee appreciation, the RBI appears to be using them to rebuild reserves and improve its forward position, while simultaneously containing depreciation pressure. 

India’s foreign exchange reserves stood at $716.9 billion for the week ended 14 August, up from $707 billion a week earlier. The RBI’s intervention may ease once FCNR-B deposit inflows begin to taper, according to market participants. 

FCNR-B Window Closing and Jackson Hole Speech Loom as Key Near-Term Triggers 

Market participants are closely monitoring two critical events that could shape the rupee’s trajectory in the coming days. First, the Reserve Bank of India’s discounted non-resident dollar deposit scheme ends on Monday, 31 August. Once this window shuts, the steady stream of inflows that has supported the rupee may dry up, potentially leaving the currency more exposed to external pressures. The RBI’s decision to give lenders greater flexibility in accessing its swap facility should prevent excess dollar liquidity from lingering in the banking system for an extended period. 

Second, market participants are seeking greater clarity from Federal Reserve Chair Kevin Warsh’s speech at the Jackson Hole symposium later on Friday. His hesitation to offer forward guidance has, in itself, added to investor uncertainty. Recent data points toward elevated inflation, but central bank watchers expect Warsh to sound neutral. A hawkish surprise would strengthen the dollar and pressure the rupee, while a dovish speech would ease pressure on the local currency. Traders were pricing in a 64% probability that the Federal Reserve will leave rates unchanged at its next meeting. 

The rupee’s remarkably narrow trading range over the past 11 sessions underscores the RBI’s firm commitment to managing exchange rate volatility through sustained intervention. The impending closure of the FCNR-B deposit window on 31 August could alter the supply-demand dynamics in the foreign exchange market. Market participants should monitor the Federal Reserve’s policy signals from the Jackson Hole symposium, as any hawkish surprises could strengthen the dollar and exert renewed pressure on the rupee. The interplay between RBI intervention, FCNR-B inflows, crude oil prices, and global monetary policy will continue to dictate the currency’s near-term trajectory. 

Source 

• https://rbi.org.in/