The Reserve Bank of India has sold at least $8 billion in the foreign exchange market to support the Indian rupee, according to estimates from bankers cited by Reuters. The action came as the rupee faced pressure from high oil prices and concerns over supply through the Strait of Hormuz.
The scale of the RBI action shows how closely the central bank is watching the currency market. Bankers estimate that the RBI may have sold between $8 billion and $15 billion during the week. One banker put the figure at about $15 billion, while another estimate placed the amount at $10 billion to $11 billion for the week ended September 4.
The dollar sales helped the rupee gain strength. On September 3, the rupee rose to 94.2850 per US dollar, its strongest level in more than two months. The move came despite a difficult global backdrop, with crude oil prices near six-week highs and fresh concerns about energy supply.
Rupee Holds at 94.4850
The RBI’s support was also clear in the currency market on September 7. The rupee traded in a very narrow range and closed at 94.4850 per dollar, almost unchanged from the previous session. The currency moved within a range of about 10 paise during the day.
Bankers said state-run banks made steady dollar sales, most likely on behalf of the RBI. Such action can reduce sharp moves in the rupee and help keep the market more stable.
The central bank has kept a strong presence in the FX market for about two weeks. Its regular dollar sales have helped the rupee resist pressure from higher oil prices and a stronger demand for dollars from importers.
The latest move also shows that the RBI does not want the rupee to weaken too quickly. A sharp fall in the currency can raise the cost of imported goods, especially crude oil. That can add pressure to domestic inflation and increase costs for businesses that rely on imports.
Why the RBI Has More Room to Act
A key factor behind the RBI’s recent action is a large flow of foreign currency into India. More than $136 billion in dollar inflows came into the system through policy measures linked to foreign currency borrowing and deposits.
The RBI had introduced measures that made some forms of foreign currency funding more attractive. These included a discounted hedging facility for overseas borrowing by state-run companies and banks. The central bank also offered a no-cost hedging option for banks that raise foreign currency deposits.
These flows gave the RBI more dollars to use in the market. That made it easier for the central bank to sell dollars without putting the same level of pressure on its reserve position.
India’s foreign exchange reserves had already reached a record $740.8 billion as of August 21. J.P. Morgan estimated that reserves had since moved above $750 billion.
This large reserve base gives the RBI significant power to manage sharp currency moves.
Oil Prices Create a New Problem
The main challenge for the rupee remains crude oil. Brent crude futures stood at about $96.6 per barrel on September 7. Goldman Sachs has said prices could rise as high as $120 per barrel if attacks on shipping increase.
India imports a large share of the crude oil it uses. When oil becomes more expensive, Indian buyers need more dollars to pay for the same amount of crude. That can raise demand for the US dollar and place pressure on the rupee.
The latest rise in oil prices came after strikes on vessels that travel through the Strait of Hormuz. The situation has raised fears of a wider supply disruption in the Middle East.
Iran has also said it plans to announce a new restricted zone in the Persian Gulf, along with maps for a new shipping route through the Strait of Hormuz. Any further disruption in this key route could push energy prices higher.
The Fed Adds Another Layer of Pressure
The RBI is also dealing with a major global factor: US interest rates.
Traders now see about a 57% chance of a Federal Reserve rate hike this month. This view gained strength after stronger-than-expected US labour data.
A higher US interest rate can support the dollar because it can make US assets more attractive to global investors. If the dollar gains broad strength, currencies such as the rupee can face extra pressure.
The next major event for the currency market is US inflation data due on September 11. The result could have a large effect on expectations for the Federal Reserve’s next move.
A strong inflation figure could increase the chance of a US rate hike and give the dollar more support. A softer result could reduce those expectations and take some pressure off emerging market currencies such as the rupee.
RBI Action May Limit Rupee Volatility
The RBI’s intervention does not mean that the rupee must keep rising. Its main purpose is to limit sudden moves and keep the currency market orderly.
The recent data shows this effect clearly. Even with crude oil near $96.6 per barrel, the rupee held near the 94.50 area on September 7. Without central bank support, the currency could have faced greater pressure from higher energy costs and strong dollar demand.
Market participants expect the RBI to remain active if the rupee comes under fresh pressure. The central bank may continue to use its large reserve pool to smooth sharp moves rather than target one exact exchange rate.
This approach is important because a stable currency can help businesses plan their import and export costs with greater confidence.
What This Means for USD/INR
For the USD/INR pair, the current setup has two forces on opposite sides.
RBI dollar sales support the rupee and can keep USD/INR lower. Strong oil prices, higher US rate expectations and greater demand for dollars from importers can push USD/INR higher.
This creates a tug of war around the currency pair.
On September 7, the rupee ended at 94.4850 per dollar, which shows how closely these forces were balanced. The market now has to assess whether the RBI can continue its strong support if oil prices move higher.
The answer may depend on the scale of future dollar inflows, the path of crude prices and the Federal Reserve’s next decision.
A Key Test for the Rupee
The RBI’s at least $8 billion intervention is a major sign of its commitment to currency stability. The possible range of $8 billion to $15 billion also shows how active the central bank was during the week.
For now, the strategy appears to have worked. The rupee reached 94.2850 on September 3 and later closed at 94.4850 on September 7. At the same time, the RBI has maintained a large reserve base, with reserves at $740.8 billion as of August 21 and estimates that they have since crossed $750 billion.
Still, the next phase may be harder. Higher crude prices could increase dollar demand, while a possible US rate hike could add further strength to the dollar.
For USD/INR traders, the key signals now are clear: RBI intervention, crude oil prices, US inflation and Federal Reserve rate expectations. If oil remains high and US rate expectations rise, the rupee may face renewed pressure. If oil settles and US inflation comes in soft, the RBI could get more room to keep the rupee stable.
The coming days should therefore provide an important test of how far central bank support can protect the rupee from global market pressure.
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