Rupee Reaches One-Month Closing High Amid RBI Repo Rate Hold and Declining Crude Oil Prices
The Indian rupee strengthened to a one-month high on Wednesday, reaching 94.92 against the US dollar, bolstered by lower crude oil prices. However, the gains were curtailed after the Reserve Bank of India (RBI) decided to keep policy rates unchanged. The currency ultimately settled at 95.1175 per dollar, marking its strongest closing level since July 7.
Analysts noted that the RBI’s decision to maintain interest rates, combined with a rebound in the US dollar and rising oil prices, impacted the rupee’s performance after its initial rally. Dilip Parmar, a Foreign Exchange Research Analyst at HDFC Securities, indicated that immediate support for the USD/INR pair is around 94.75, with resistance near 95.60. He mentioned that while the macro outlook remains weak, short-term buying could push the currency toward resistance levels.
Lower oil prices help
Oil prices significantly influenced currency movements. Benchmark Brent crude had dropped over 12% in the previous two sessions due to hopes for a diplomatic resolution in the US-Iran conflict. However, prices rebounded on Wednesday following an attack by Yemen’s Iran-backed Houthi rebels on a Saudi oil tanker in the Red Sea. The earlier decline in crude prices contributed to the rupee’s appreciation of 1.4% over the past eight trading sessions, with traders also noting a recent increase in foreign exchange inflows.
Market participants indicated that any further appreciation of the rupee beyond the 95-per-dollar mark could lead to increased demand for the US currency. The RBI’s decision to keep its benchmark policy rate unchanged reflects a cautious approach as policymakers await clearer signals on whether fluctuating crude oil prices will lead to broader inflationary pressures. Opinions on future policy actions are mixed, with some economists, like Sonal Badhan from Bank of Baroda, predicting a potential 25 basis point rate hike in December to support the rupee.
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