The rupee opened at 95.00 per dollar, compared with Monday’s (August 31’s) close of 95.16, marking a 16 paise rise.
Why is the rupee gaining?
The Reserve Bank of India (RBI) is believed to have sold dollars before the spot market opened, according to traders and a foreign exchange broker. Such intervention increases dollar supply and can help limit sharp falls in the rupee.
The currency is also benefiting from foreign exchange inflows under the RBI’s special FCNR(B) scheme. The facility had mobilised $73 billion as of August 21, according to the central bank.
Dollar flows linked to MSCI rebalancing have provided additional support, according to Dilip Parmar, Senior Research Analyst at HDFC Securities.
What is keeping the rupee under pressure?
The gains come against a backdrop of higher crude oil prices and geopolitical tensions.
Brent crude rose 3.70% to $91.36 a barrel, as renewed concerns over West Asia supply risks raised worries about oil flows through the Strait of Hormuz.
Higher oil prices are negative for the rupee because India imports most of its crude requirement. A rise in the import bill increases demand for dollars and can weigh on the domestic currency.
The dollar index, meanwhile, was at 99.52, down 0.18%, offering some relief to the rupee.
What does the rupee’s movement mean for you?
A stronger rupee can reduce the cost of dollar-denominated expenses, including overseas travel, education and certain imports.
It can also benefit Indian businesses that depend on imported crude, machinery or other raw materials. However, the impact on consumers depends on how long the currency remains stronger and how global commodity prices move.
What could decide the rupee’s next move?
The 95-per-dollar level is now an important level for the currency.
Further RBI intervention, foreign currency inflows and a weaker dollar could support the rupee. In contrast, higher crude prices, foreign investor outflows and expectations of tighter US monetary policy could renew pressure.
Foreign institutional investors were net sellers of Indian equities worth ₹7,985.88 crore on Monday (August 31), adding to the challenges for the domestic currency.
India’s economic growth remains a positive factor. The economy expanded 7.8% in the April-June quarter, beating expectations and signalling continued resilience despite global uncertainty.
-With Reuters inputs
