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The Indian rupee opened nearly flat at 94.47 against the US dollar on Thursday (October 22), compared with Wednesday’s (October 21's) close of 94.46, depreciating by 1 paisa.
The currency has gained for eight consecutive sessions, recovering from around 96.60–96.70 to its strongest level since early September.
The rally has been supported by Reserve Bank of India (RBI) measures, dollar-selling intervention, flows linked to the Jio Platforms initial public offering (IPO) and the unwinding of dollar-buying positions. However, rising crude oil prices remain a key risk to the recovery.
What is driving the rupee’s recovery?
RBI intervention and measures: The central bank’s steps to manage dollar demand, alongside intervention in the foreign exchange market, have supported the rupee.
Jio Platforms IPO flows: The IPO attracted strong demand from institutional investors on Wednesday. Foreign investors may sell dollars to fund rupee investments, although the impact on the spot market depends on how they manage their currency exposure. Some investors use foreign exchange swaps, which can limit the immediate impact on spot-dollar supply.
Unwinding of dollar positions: The rupee’s breach of the 94.70-per-dollar level on Wednesday, which had acted as a technical hurdle the previous week, could prompt traders to unwind dollar-buying positions and provide further support.
Why does crude oil matter?
Brent crude rose around 1.5% on Thursday (October 22) to above $110.50 a barrel amid renewed geopolitical tensions and concerns over supply disruptions.
India’s reliance on imported oil means higher prices can increase demand for dollars from importers, putting pressure on the rupee. Persistently expensive crude can also raise the import bill and add to inflationary pressures.
What is the outlook for the rupee?
The near-term direction will depend on continued RBI intervention, IPO-related flows, importer demand for dollars and crude oil prices.
The rupee’s stronger levels could attract dollar purchases from importers. However, expectations of continued central bank support and supportive flows may make them cautious about buying immediately.
A treasury official cited by Reuters warned of a material risk of the rupee reversing its rally if oil-price pressures intensify. The recent gains, therefore, do not rule out renewed weakness if crude remains elevated or dollar demand increases.
-With Reuters inputs
