India Rupee Outlook
May surge as oil falls below $80/bbl; MPC outcome eyed
This story was originally published at 08:45 IST on 5 August 2026
Register to read our real-time news.Informist, Wednesday, Aug. 5, 2026
By Divya Moolayattil
MUMBAI – The rupee is likely to surge against the dollar Wednesday as Brent crude oil prices fell sharply overnight, below $80 a barrel for the first time in three weeks on renewed hopes of reopening Stait of Hormuz. Qatar's Foreign Ministry spokesperson Majed al-Ansari said efforts to secure a diplomatic resolution to the war were continuing. US Treasury Secretary Scott Bessent said that the US and Iran could reach a deal to open the Strait of Hormuz on Wednesday.
However, as per media reports, Iran rejected claims about reopening the strait and said that negotiations will move forward if the US stops interfering. Brent crude oil for October delivery was at $79.73 a barrel, down from Tuesday's high of $86.33 a barrel.
The rupee is likely to open sharply higher around 95.00-95.05 a dollar Wednesday after it closed at 95.3775 Tuesday. The Indian unit is expected to move in a range of 94.90-95.40 against the dollar during the day. "Expecting the rupee to test 94.80 this week provided crude manages to sustain below 80 (a barrel). All Asian currencies are positive today and equities are up, so the momentum is definitely in rupee's favour," said Ritesh Bhansali, Deputy CEO at Mecklai Financial Services Ltd.
The market awaits the decision of the Reserve Bank of India's Monetary Policy Committee and will keep a close watch on commentary on growth, inflation and liquidity. Dealers said the MPC meeting was likely to be a non-event for the foreign exchange market as the MPC is expected to keep interest rates on hold and maintain a neutral policy stance, owing to uncertainty over the impact of the war in West Asia and El Nino on economic activity and inflation. "Comments on liquidity will drive USD/INR or else going to be range bound. Anything on the CRR (cash reserve ratio) front will be mildly positive for the rupee. Short-term yields to spike as we have around INR 2 trillion surplus in the system," a dealer at a private sector bank said.
Dealers expect importers to be active, making the most of sharply lower oil prices. Their strategy is going to be to buy at every dollar-rupee dip, they said. The RBI may continue to step in and support the rupee, as it has been doing for a week.
Banks are likely to sell dollars for foreign fund inflows, which may support the Indian unit. Foreign portfolio investors net bought INR 24.5 billion on Tuesday. Foreign portfolio investors became net buyers in July for the second time since the outbreak of war on Feb. 28. This resurgence marked their highest monthly investment in Indian markets in this calendar year. FPIs pumped $4.37 billion into the Indian markets in July, and $85.48 million so far in August.
Market sentiment will remain supported by higher-than-expected inflows into Foreign Currency Non-Resident (Bank) deposits. Banks have raised $36.73 billion in FCNR (B) deposits from Jun. 8 till Friday. Inflows from FCNR (B) deposits, overseas foreign currency borrowings by banks, and external commercial borrowings by public sector undertakings were at $40.82 billion as of Jul. 31.
FORWARDS
The one-year dollar-rupee forward premium is expected to fall as banks may sell dollars for forward delivery on behalf of foreign investors, to hedge against the depreciation of Indian currency, dealers said. Banks may also buy forward dollars for importers, which is likely to weigh.
On an annualised basis, the premium on the one-year exact-period dollar-rupee forward contract is seen at 2.80-2.90% Wednesday. On Tuesday, it settled at 2.87%. On an absolute basis, the premium ended at 273.67 paise.
Dollar-rupee | Wednesday 94.90-95.40 | Tuesday 95.2575-95.3975 |
One-month NDF dollar-rupee | Wednesday 95.56 | Tuesday 95.53 |
FPI inflow/(outflow) | $85.48 million Aug. 3 | $235.45 million Jul. 31 |
End
US$1 = INR 95.3775
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Akul Nishant Akhoury
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