The Indian rupee closed at 95.23 per dollar on Monday, marking a recovery of over 1.5% since hitting a record low of 96.96 per dollar last Wednesday. The Reserve Bank of India's intervention in the forex market, alongside optimism over potential progress in U.S.-Iran negotiations, has contributed to the rupee's rebound.
State-run banks were observed selling dollars intermittently, a move interpreted by traders as a signal against speculative activities targeting the rupee. The Reserve Bank of India (RBI) Governor Sanjay Malhotra noted that the recent depreciation might have left the rupee undervalued, although the central bank does not aim for a specific currency level.
Finance Minister Nirmala Sitharaman emphasized the importance of conserving foreign exchange, aligning with Prime Minister Narendra Modi's call amid the ongoing Iran conflict. Meanwhile, Brent crude oil futures saw a significant drop of over 5% to $97.8 per barrel, which, along with gains in Asian currencies and stocks, has improved market sentiment.
“Following its recent depreciation, one could argue that the rupee has become undervalued.”
Sanjay Malhotra, RBI Governor
Amit Pabari, managing director at CR Forex, suggested that if crude oil prices remain stable and global risk sentiment continues to improve, the rupee could appreciate further towards the 94.80-94.50 range in the near term.
The combination of central bank intervention and falling oil prices has provided a much-needed respite for the Indian currency, which had been under pressure due to geopolitical tensions and rising import costs.
“If crude oil prices remain contained and global risk sentiment continues to improve, there is a strong possibility that the rupee may gradually appreciate toward the 94.80-94.50 zone in the near term.”
Amit Pabari, Managing Director at CR Forex
Background
The rupee's recent struggles have been exacerbated by geopolitical tensions and rising import costs, particularly due to high oil prices. The RBI's intervention and the potential easing of U.S.-Iran tensions offer a reprieve for the currency.
Looking ahead, market participants will be closely monitoring developments in the U.S.-Iran negotiations and oil price trends, as these factors will likely influence the rupee's trajectory in the coming weeks.
