The Indian Rupee (INR) extended its rally against the US Dollar (USD) for the third consecutive trading day on Wednesday, supported by new measures from the Reserve Bank of India (RBI) aimed at curbing USD demand. In opening trade, the USD/INR pair fell by 0.35% to slightly below 95.00, marking its lowest level in over a month [1]. Over the weekend, the RBI introduced several initiatives, including a special window for Public Sector Undertaking Oil Marketing Companies (OMCs) to purchase US Dollars for crude oil imports and tighter hedging rules, both designed to reduce spot market demand for USD [1].
Strategists at OCBC commented that the RBI's 'increasingly forceful response may help contain near-term INR depreciation pressures,' but cautioned against expecting a sustained recovery. They noted that higher hedging costs could temper forward USD demand but might also discourage genuine corporate hedging, and that the special USD window for oil companies shifts demand rather than reducing India's underlying USD requirements. OCBC sees potential for some near-term INR gains, but the sustainability depends on moderating portfolio outflows and easing external pressures from oil prices and US yields. For now, the policy measures are expected to establish a firmer near-term footing for INR, rather than reverse its broader depreciation trend [1].
Oil prices rebounded in opening trade, with the MCX Crude Oil contract expiring October 19 rising almost 0.5% to near Rs. 9,000. This recovery follows a monthly low of Rs. 8,338 last week, as supply risks from the Middle East persist due to tensions between Saudi Arabia and Iran-backed Houthis. The Houthis attacked an administrative building belonging to Saudi Aramco in Dhahran, causing a limited fire, according to Saudi Arabia’s energy ministry [1]. Currencies from oil-importing economies like India tend to underperform when oil prices are high [1].
The USD/INR pair was also weighed down by a correction in the US Dollar ahead of the release of US Consumer Price Index (CPI) data for September. The US Dollar Index (DXY) traded 0.1% lower near 102.10 in Asian trade, retreating from its yearly high of 102.61 posted on Monday. Investors are closely watching the US CPI data for further cues [1].
CONCLUSION
The Indian Rupee's recent gains are attributed to RBI's targeted measures and a weaker US Dollar, but analysts remain cautious about the sustainability of this rally given ongoing external pressures. Oil price volatility and upcoming US economic data are likely to influence INR's trajectory in the near term. Overall, the RBI's actions have provided short-term support, but a decisive reversal in the currency's broader depreciation trend is not yet evident.