Indian rupee likely to stay near 95 as RBI defends currency against oil pressure

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Rupee near 95 on RBI defense

Highlights

The Indian rupee closed at 94.96 against the dollar Friday and is expected to trade in a 94.92 to 94.98 range as the RBI actively intervenes.
RBI's dollar sales and defensive interventions have reduced India's foreign exchange reserves by nearly $60 billion to $726 billion through Oct. 9.
Brent crude oil briefly topped $110 a barrel Friday before easing to about $108, sustaining pressure on the rupee while capital outflows remain an additional risk.

RBI intervention shapes near-term trading

As reported by Reuters, traders expect the rupee to open in a 94.92 to 94.98 range after closing at 94.96 against the dollar on Friday. In recent sessions, the currency has moved around the 95-per-dollar mark, briefly strengthening beyond that level before failing to hold the move, while declines past 95 have repeatedly met resistance.

That pattern suggests the Reserve Bank of India may be selling dollars to limit further weakness beyond 95, according to a currency trader at a bank. The rupee last week posted its best weekly performance in nearly four years, supported by RBI measures and repeated dollar sales in the spot market.

The RBI has also stepped up its broader defence of the rupee alongside sell-buy swaps. That intervention is showing up in foreign exchange reserves, which have fallen by nearly $60 billion from their record high in the first week of September to $726 billion through Oct. 9.

Oil prices and outflows remain key risks

Oil continues to be a major pressure point for the rupee as higher import costs weigh on India's external position. Brent crude briefly rose above $110 a barrel on Friday for the first time since May before easing slightly on Monday to about $108 a barrel.

The pullback follows U.S. President Donald Trump's decision to waive new sanctions on Russia and tariffs on goods from Russia, a move that could open the way for higher Russian fuel exports. Even so, analysts and investors broadly believe the RBI's support for the rupee is likely to have limited effect unless oil prices retreat, especially as the currency also faces pressure from capital outflows.

In our earlier article on the RBI’s rupee defence, we detailed how the central bank used an estimated $75–$80 billion via spot dollar sales and dollar-rupee sell/buy swaps after its June 8 measures, contributing to a notable drawdown in foreign-exchange reserves. We also highlighted that persistent pressure from elevated oil prices, higher U.S. Treasury yields, and foreign equity outflows has pushed the RBI to add steps aimed at curbing dollar demand, while raising questions about how long reserves can cushion the rupee.

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