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Informist, Thursday, Apr. 30, 2026

 

By Pratiksha

 

NEW DELHI – After recent drastic regulatory measures to support the Indian rupee, the Reserve Bank of India has lowered its guard and is allowing the Indian currency to depreciate, as there seems to be no end in sight to the war in West Asia, market participants said.    

 

The rupee slumped to a lifetime low of 95.3325 against the dollar Thursday as crude oil prices surged to a four-year high. While the RBI has been selling dollars in the spot market to curb the rupee's fall, the intervention has been very limited, dealers said. 

 

This comes after the central bank in March and April announced rare foreign exchange measures to defend the Indian unit as it came under pressure in the wake of the war in West Asia, which broke out after the US and Israel attacked Iran on Feb. 28. On Mar. 27, the RBI directed authorised dealers to ensure their net open rupee positions in the onshore market did not exceed $100 ‌million at the end of each business day. It further doubled down on its support for the rupee and issued more directions on Apr. 1, prohibiting banks from offering rupee non-deliverable derivative contracts to resident or non-resident clients, effective immediately. On Apr. 20, the RBI withdrew the Apr. 1 directions. 

 

These measures pulled the rupee back to 92.40 on Apr. 10 from its low of 95.22 on Mar. 30, reversing more than half its fall after the war broke out. However, the gains were short-lived, as the rupee fell to a new low Thursday and was flat for the month in April.

 

Market participants said the rupee's recent move suggests that the central bank now wants the currency to adjust to the impact of the surge in crude oil prices, as there seems to be no respite on that front, at least in the near term. There is only so much the central bank can spend to keep supporting the rupee at a time when none of the factors are working in its favour.

 

Brent crude oil prices have jumped almost 60% since the onset of the war in West Asia. Peace negotiations between the US and Iran are stalled, with the US imposing a blockade on Iranian ports and Tehran keeping the Strait of Hormuz shut. 

 

"Markets are growing fatigued by the lack of de-escalation in the West Asia conflict. Other oil-importing countries' currencies are also under pressure, and the rupee is no exception," Sameer Karyatt, executive director and head of trading at DBS Bank India, said. "In my view, as long as geopolitical tensions in the Middle East persist, depreciation pressures on the rupee will remain," he said. 

 

Market participants also pointed out that the RBI's earlier measures were aimed at curbing speculation in the currency market rather than addressing genuine demand for dollars. Thus, the central bank is now allowing the exchange rate to move in line with other currencies after removing the added layer of speculative activity that could have compounded this depreciation, they said. In fact, by choosing to rollback only the Apr. 1 directions, the central bank has restored the space for normal hedging activity by corporates, including exporters and importers, but not for speculation, they said. 

 

"RBI's war was only against speculative activity and that they have successfully killed," a senior treasury official at a foreign bank said. "So, at this point, when the market is purely moving on fundamentals, I don't think they would want to tinker with it much because that would deplete their reserves for nothing. Even if they push the rupee higher by 100 paise, it will eventually start to move lower soon after as buying (of dollars) will come in."

 

Thus, with the central bank taking a step back and crude oil prices expected to remain higher, market participants now expect the Indian currency to depreciate further in the near term. Most expect the Indian unit to fall to as low as 96.00-97.00 a dollar next month. 

 

"Things are only looking ugly for the rupee from here as crude has risen above $120 (a barrel). Even if crude sustains above $100 for one more month, there will be a lot of demand (for dollars)," said Ritesh Bhansali, deputy chief executive officer at Mecklai Financial Services Ltd., said. "I won't be surprised if the rupee goes to 96 or 97 from here on."   

 

However, some market participants still expect the RBI to use other tools from its arsenal to defend the currency, such as a foreign currency non-resident deposit window. Most want the central bank to introduce measures that will structurally strengthen the rupee, even if only in the near term. "Right now, the need of the hour is we need foreign inflows and for that I think RBI may come out with an FCNR window, like they did in 2013," Bhansali said.

 

State Bank of India's Group Chief Economic Adviser Soumya Kanti Ghosh has also called for a comprehensive set of measures to address the balance of payments deficit. 

"Exchange rate cannot be construed as a shock-absorbing mechanism in perpetuity, as increased levels of uncertainties and volatilities render it to transform into a pass-through mechanism of imported inflation seeping through multiple channels, anchoring inflationary expectations and defeating at times the very purpose of prudent, and agile monetary policymaking," Ghosh said in a report. 

 

"It is thus imperative that a comprehensive set of measures are required given that BoP (balance of payments) could be negative for the third consecutive year," he added.  End

 

US$1 = INR 94.91

 

Edited by Deepshikha Bhardwaj

 

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