Rupee Slips 0.3% to 95.89 as Fed Hike and $104 Brent Test RBI’s 96 Red Line 

Mumbai, Sept 19: The Indian Rupee ended the week at 95.89 against the US Dollar, logging a 0.3% week-on-week decline as a hawkish US Federal Reserve rate hike, Brent crude’s surge to near four-month highs, and sustained foreign portfolio outflows combined to keep the currency under pressure.  

The Reserve Bank of India intervened repeatedly through state-run banks to defend the 96 per dollar mark, which traders described as a “line in the sand” for the moment. The rupee’s weekly range spanned from a low of 96.10 on Thursday to a high of 95.71 on Friday, a spread of 39 paise. 

Rupee Ends at 95.89 After 39-Paise Weekly Range Tests RBI’s Defence at 96 

The USD/INR pair opened the week on Monday, 14 September, at approximately 95.84, building on the previous week’s sharp depreciation that had pushed the rupee to its weakest level in over a month. The rupee had ended the prior week at 95.57, having declined 1.1% — its sharpest weekly fall in four months — as Brent crude surged above $102 per barrel and US Treasury yields climbed. The momentum of that sell-off carried into the current week, with the rupee declining for a sixth consecutive session on Tuesday to close at 95.88, down 34 paise from Monday’s close of 95.54. 

The week’s weakest trading day was Tuesday, 15 September, when the rupee depreciated 0.42% intraday, touching 95.96 as escalating Middle East tensions and soaring Brent crude prices weighed heavily on sentiment. The currency found its strongest footing on Friday, 18 September, when it opened sharply higher at 95.75 and touched an intraday high of 95.71 before settling at 95.89.  

The weekly close of 95.89 compared with the prior week’s close of 95.57, representing a net depreciation of 32 paise or 0.3%. The rupee had declined 150 paise or nearly 1.5% over the eight sessions preceding Thursday, since touching 94.43 on 4 September. 

Euro Holds Above 111, Pound Climbs to 129.53 as Yen Weakens on BOJ Hike 

Against the Euro, the rupee traded in a relatively narrow band. The EUR/INR pair opened the week near 110.84 and closed at approximately 111.13, reflecting a weekly depreciation of roughly 0.26% for the rupee. The Euro found support from the European Central Bank’s steady policy stance, while the rupee’s weakness against the single currency was cushioned by the euro’s own softness against the dollar. The RBI’s reference rate for EUR/INR stood at 111.153 as of 11 September, providing a baseline for the week’s movements. 

The British Pound strengthened against the rupee, with GBP/INR futures on the NSE trading at 129.53, up marginally on the day, as UK CPI accelerated and the Bank of England maintained a hawkish bias. The pound’s gains against the rupee reflected both sterling’s underlying strength and the rupee’s broad-based weakness. Against the Japanese Yen, the rupee weakened after the Bank of Japan raised interest rates, joining the Federal Reserve in tightening monetary policy.  

The JPY/INR pair traded near 0.6225 at the week’s high, with the yen finding support from the BOJ’s policy normalisation. The coordinated rate hikes by the Fed and BOJ underscored the global shift toward tighter monetary conditions, which weighed on emerging market currencies including the rupee. 

Fed’s 25 bps Hike to 3.75-4% Lifts Dollar Index to 99.97, Pressuring Emerging Currencies 

The US Federal Reserve’s decision on Wednesday, 16 September, to raise the federal funds rate by 25 basis points to a target range of 3.75%–4.00% was the single most significant external trigger for the rupee’s weekly decline.  

The FOMC voted unanimously for the hike, with the statement removing references to energy supply shocks and emphasising that “today’s policy action will support a timelier return” to the 2% inflation goal. The Fed’s updated projections showed the median participant expecting an additional 25 basis points hike by end-2026, with the fed funds rate ending the year at 4.1%. 

The rate hike strengthened the US Dollar Index, which traded at 99.97, down just 0.02% on Friday but significantly elevated on a weekly basis. Higher US benchmark borrowing costs are negative for risk assets including emerging market currencies and equities, as they draw capital toward dollar-denominated assets.  

US Treasury yields initially surged to a 19-year high of 5.04% on Tuesday before correcting to around 4.94% by Friday, providing some relief to the rupee. The yield correction followed a pause in the rally in oil prices, with lower US bond yields improving the appeal of risk-sensitive assets such as the Indian Rupee. 

Brent’s $103.85 Retreat from Four-Month Highs Cuts Import Bill Pressure on Rupee 

Crude oil prices played a dual role in the rupee’s weekly trajectory. Brent crude surged to near four-month highs earlier in the week, driven by the aftermath of drone attacks on Saudi Arabia’s East-West pipeline and supply disruption fears. The surge directly inflated India’s import bill — India imports over 85% of its crude requirements — and widened the trade deficit, creating sustained dollar demand from oil marketing companies. The rupee weakened in tandem with Brent’s ascent, touching 95.96 on Tuesday as crude peaked. 

The dynamic reversed sharply from Wednesday onward. Brent crude corrected to $103.85 per barrel by Friday, down 0.93% on the day, as Saudi Arabia signalled it was restoring approximately half the East-West pipeline’s capacity within days and ramping up tanker loadings through the Strait of Hormuz. The oil price correction brought relief to the rupee, which recovered to 95.89 on Friday.  

The MCX crude oil contract expiring on 21 September traded at approximately ₹9,688, down from its multi-month high of ₹10,238 earlier in the week. The correction in oil prices eased pressure on India’s trade balance and current account, providing the rupee with breathing room ahead of the weekend. 

RBI Sells Dollars via State-Run Banks, Defending 96/$ with Estimated $8-15 Billion Firepower 

The Reserve Bank of India intervened in the foreign exchange market on multiple occasions during the week, with traders reporting that state-run banks were spotted offering dollars, most likely on behalf of the central bank.  

On Wednesday, 16 September, three traders told Reuters that the RBI likely intervened as elevated oil prices and the looming Fed rate hike pressured the currency. The rupee was at 95.8725 per dollar at the time, up 0.1% on the day after hitting its weakest level in more than one month in the previous session. The central bank has been intervening in the FX market frequently to support the rupee, which has helped limit the currency’s decline in the face of multiple headwinds. 

The scale of the RBI’s defensive operations was substantial. In the preceding week, the central bank sold at least $8 billion to support the rupee, according to estimates from six bankers cited in a Reuters report, with some estimates suggesting sales of up to $15 billion. The intervention helped the rupee rise to 94.2850 against the US dollar on 3 September, its highest level in more than two months. Traders said the RBI “is defending 96 quite sternly, making it a line in the sand for the moment,” indicating that the central bank’s resolve to prevent a breach of the 96 level remained firm throughout the week.  

The RBI also deployed short-term sell-buy foreign-exchange swaps in the market to mop up overseas deposit-driven liquidity, conducting swaps with September and October maturities. 

Forex Reserves Fall $4.92 Billion to $780.78 Billion After Record High 

India’s foreign exchange reserves declined by $4.92 billion to $780.78 billion in the week ended 11 September, according to RBI data released on Friday, 18 September. The decline followed a record weekly surge of $44.9 billion that had pushed reserves to an all-time high of $785.71 billion as of 4 September, making India the fourth-largest holder of foreign exchange reserves globally. Foreign currency assets, the largest component of the reserves, fell by $2.37 billion during the week to $645.8 billion, while gold reserves declined by $12.77 billion to $111.22 billion. 

The sharp week-on-week contraction in reserves reflected the RBI’s dollar-selling interventions to defend the rupee, which drain foreign currency assets. Despite the decline, India’s reserve position remained robust at over $780 billion, providing the central bank with ample firepower to manage currency volatility.  

The reserves also received support from the RBI’s special USD-INR forex swap facility covering FCNR(B) deposits, ECB and OFCB inflows introduced in June 2026, which had been extended for ECB and OFCB inflows until 31 December. 

FPIs Pull ₹13,138 Crore in September, but Friday Turnaround Brings ₹599 Crore Inflows 

Foreign portfolio investors remained net sellers for most of the week, exerting sustained pressure on the rupee. FPIs withdrew ₹13,138 crore from Indian equities in the first half of September amid global uncertainty, following net buying in July and August. On Tuesday alone, FIIs recorded net selling of ₹2,977.86 crore, which accelerated to ₹3,208.76 crore on Thursday. This sustained outflow created consistent dollar demand and weighed on the rupee through the week. 

The trend reversed on Friday, when FIIs/FPIs recorded net buying of ₹599.54 crore in the capital market segment, breaking a 10-day selling streak. Domestic institutional investors also turned buyers, purchasing ₹1,019.69 crore on a net basis. The NSE’s $2.3 billion initial public offering was fully subscribed on the second day of bidding, driven by strong demand from foreign and domestic institutional investors. Foreign portfolio inflows related to the IPO and equity index rebalancing helped cushion the rupee’s decline on Friday, contributing to its recovery from the week’s low of 96.10. 

Trade Deficit Set to Widen on Costlier Oil Imports, CAD Risks at 1.5% of GDP 

India’s merchandise trade deficit, which had shrunk to a five-month low of approximately $27 billion in August from $32 billion in July, was expected to widen again in September, according to Emkay Global. The brokerage attributed the anticipated widening to higher oil imports — August oil imports had declined 9% sequentially to $16.7 billion, reflecting older cargoes contracted in July when crude prices were around $80 per barrel. With Brent averaging significantly higher in September, the oil import bill was poised to rise meaningfully in the coming months. 

Emkay maintained its FY27 current account deficit forecast at 1.3% of GDP but flagged upside risks if the oil price spike persisted, with CAD/GDP potentially widening to 1.5% at an average Brent price of $90 per barrel. India’s current account deficit had already widened to $4.2 billion or 0.5% of GDP in the first quarter of fiscal 2026-27, from $3.4 billion or 0.4% of GDP a year earlier. The combination of elevated crude prices, a widening trade gap, and persistent FPI outflows created a challenging external environment for the rupee throughout the week. 

Track the RBI’s intervention intensity near the 96 mark and weekly forex reserves data for defence capacity signals. Monitor Brent crude’s trajectory and FII flow reversals as key rupee drivers. Watch the Fed’s rate path and US Treasury yields for dollar direction, and the trade deficit trajectory for structural pressure. The NSE IPO’s subscription progress and equity index rebalancing flows may influence near-term rupee liquidity. 

Source 

• https://rbi.org.in/