The Indian Rupee (INR) has faced significant pressure due to the ongoing conflict in the Middle East and rising oil prices, according to Commerzbank analysts Charlie Lay and Moses Lim [1]. Since the start of the Iran war, the INR has depreciated by 3.4% against the US Dollar (USD), and is down nearly 5% year-to-date [1]. In response, the Reserve Bank of India (RBI) has prioritized currency stability, maintaining the policy rate at 5.25% and actively intervening in the foreign exchange markets [1].
The USD/INR exchange rate reached a record high of just above 95.20 in late March and has since traded within a supported 92–95 range, attributed to RBI's measures [1]. As of April 17, India's foreign exchange reserves remain robust at just over USD 700 billion, providing approximately 11 months of import cover [1]. Commerzbank expects the USD/INR to consolidate within this range in the near term, with continued RBI intervention to limit further upside [1].
To support the INR, RBI Governor Sanjay Malhotra announced several measures aimed at curbing speculative activity. These include capping the net open position in INR of dealer banks to USD 100 million per day, barring domestic banks from offering INR NDF contracts to non-resident Indians and related parties, and prohibiting the rebooking of canceled forward contracts [1]. However, deliverable forward contracts are still permitted for hedging purposes [1]. These steps are designed to reduce banks' ability to short the INR in the onshore market while taking long positions in the offshore NDF market to exploit arbitrage opportunities [1].
Commerzbank analysts note that the RBI is expected to keep the policy rate unchanged in the near term, opting for flexibility amid elevated global uncertainties [1].
CONCLUSION
The Indian Rupee remains under pressure from external shocks, but the RBI's proactive interventions and robust FX reserves are helping to stabilize the currency. Market participants can expect USD/INR to consolidate within the 92–95 range in the near term, with the RBI maintaining a focus on limiting volatility and speculative activity.