The Rupee just can’t catch a break. Despite the RBI stepping in with fresh liquidity support, the currency keeps sliding back — and crude oil helming most of the damage, according to sources tracking the currency markets.
The RBI measures do not seem to have caused much of an impact. As per data from currency dealers, the moment oil prices ticked up again, Indian importers went right back to scooping up dollars, and with India relying on imports for over 85% of its crude needs, that kind of demand hits the rupee harder than almost anything else.
The numbers tell the story. As per the report, the rupee slid to a two-month intraday low this week, closing around 96.45 against the dollar after touching 96.53, as elevated crude prices tied to the ongoing conflict in West Asia weighed on the currency and pushed dealers to expect RBI intervention. That’s uncomfortably close to its all-time low — sources say the unit has flirted with levels near 96.96 in recent sessions, a threshold traders are watching closely.
7It’s not just oil dragging it down. According to sources, dollar strength globally, persistent foreign fund outflows, and the geopolitical mess in the Middle East are all pulling in the same direction. The Fed holding its rates firm — currently in the 3.50%-3.75% range, with talk of another hike on the table — keeps the dollar well-supported, adding pressure from the other side.The RBI hasn’t been sitting on its hands, either.
Governor Sanjay Malhotra has been clear that the central bank isn’t defending any specific level for the rupee — its interventions, as per the central bank’s own statements, are aimed purely at smoothing out excessive volatility, not fighting the broader trend.
Alongside spot and forward market operations, the bank has also been working to draw in longer-term capital: as per data released by the RBI, a concessional swap scheme for foreign currency deposits, running since June 8, had pulled in more than $20 billion by mid-July, most of it through FCNR(B) deposits.
According to sources familiar with the central bank’s thinking, its own projections point to higher inflation ahead on the back of costlier energy, alongside a slightly trimmed growth outlook — hardly the ingredients for a sharp rupee recovery. As per market watchers, most expect the currency to stay soft and range-bound rather than bounce back, with the path ahead riding on where oil heads next, how the dollar behaves, and what emerges from upcoming US economic data, including the Fed’s decision due at month’s end.
As per analysts tracking the situation, is simple: the RBI can smooth the rough edges, but it can’t out-muscle crude prices and a strong dollar at the same time.