The rupee’s slide despite improving portfolio flows, equities have flipped to inflows and debt has stayed positive, points to the pressure being driven more by oil-linked importer demand and broader risk aversion than by any capital flight narrative, which limits how much a flow-based recovery could help near term. The RBI’s near-daily intervention across spot and forward markets shows clear intent to slow the pace of decline, but traders characterize the scale as measured rather than aggressive, suggesting the central bank is managing volatility rather than defending a hard line near the record low. With the currency now within half a percent of its all-time trough, any further escalation in oil prices tied to the Middle East conflict could test whether the RBI shifts to a more forceful defense.
The rupee is sliding toward its record low even as the RBI intervenes almost daily across spot and forward markets, with traders describing the central bank’s defense as measured rather than an attempt to hold a hard line, leaving the currency exposed to further oil-driven pressure.
Summary:
- The Indian rupee is expected to open Friday in the 96.40 to 96.44 range against the US dollar, having settled at 96.3450 on Thursday, according to Reuters.
- The currency is on a four-session losing streak and now sits less than 0.5% from its record low of 96.96 per dollar, hit in May.
- The Reserve Bank of India has been intervening almost daily in both spot and non-deliverable forward markets to support the rupee, though traders described the scale of intervention as relatively measured given the intensity of pressure on the currency.
- The decline comes despite a turnaround in portfolio flows, with foreign investors buying about $1.5 billion of Indian equities so far this month, reversing more than $5 billion in outflows in June.
- Foreign debt inflows have also stayed positive, with roughly $500 million invested this month on top of more than $3 billion in June.
- A currency trader attributed the pressure largely to routine importer and exporter-related flows, along with a few chunky outflows, adding that the RBI has not shown intent to aggressively defend a particular level.
The Indian rupee looked set to extend its losing streak at Friday’s open, with deteriorating risk appetite compounding pressure from rising crude oil prices even as the Reserve Bank of India steps up its defense of the currency, according to Reuters.
Traders expect the rupee to open in the 96.40 to 96.44 range against the US dollar, after settling at 96.3450 on Thursday. The currency is now on a four-session losing streak, during which it has broken through levels many market participants had expected to offer significant resistance, leaving it less than 0.5% away from the record low of 96.96 per dollar reached in May.
The Reserve Bank of India has been at the center of efforts to slow the slide, intervening almost daily in both the spot and non-deliverable forward markets to support the rupee. Even so, traders said the scale of that intervention has been relatively measured given the intensity of the pressure the currency is facing, suggesting the RBI is aiming to smooth the pace of decline rather than mount an aggressive defense of any specific level.
Notably, the pressure on the rupee has persisted despite an improving portfolio flow backdrop, particularly on the equity side. Foreign investors have purchased about $1.5 billion worth of Indian equities so far this month, a sharp reversal from outflows of more than $5 billion in June. Foreign debt inflows have also remained positive, with roughly $500 million invested this month, building on more than $3 billion that flowed into Indian debt in June.
That disconnect between constructive portfolio flows and a weakening currency points to other forces at work. A currency trader at a bank said the pressure looks consistent with routine importer and exporter-related demand rather than any broader flight from Indian assets, though he noted a few larger, chunky outflows had also weighed on the rupee. He added that the RBI has not shown intent to aggressively defend a particular level, reinforcing the sense that the central bank’s daily intervention is calibrated to manage the pace of depreciation rather than draw a hard line in the sand.
With the rupee now within striking distance of its record low and oil prices remaining elevated on the back of the escalating Middle East conflict, the coming sessions are likely to test whether the RBI’s current, measured approach to intervention holds or whether the central bank moves toward a more assertive defense.
This article was written by Eamonn Sheridan at investinglive.com.