RBI Intervenes to Support Rupee Amid Oil Prices & Fed Hike Fears

The Reserve Bank of India (RBI) intervened on Monday, providing crucial support to the Indian rupee. This action came as the currency faced significant downward pressure from surging global oil prices and increased expectations for a US interest-rate hike.

The rupee initially weakened to 95.60 against the dollar on the interbank order-matching system. However, following the RBI’s strategic actions, it recovered to 95.44 by 11:49 a.m. IST.

Understanding RBI’s Stabilisation Strategy

The RBI’s consistent intervention has become a defining characteristic in recent trading sessions. This approach has effectively shielded the rupee from adverse external developments, muting its typical response to otherwise influential global factors.

A currency trader noted the central bank’s early and persistent presence in the market. This established the 95.70-95.80 zone as a critical support level for the Indian currency.

Key market pressures influencing the rupee on Monday included:

Brent crude oil prices rose 3.2 percent, reaching $90.92 per barrel, following an escalation involving the US and Iran.

Investor bets on a Federal Reserve rate hike increased after Fed Chair Kevin Warsh delivered a hawkish speech on Friday.

RBI’s Broader Intervention Tools

Beyond direct spot market interventions, the RBI also utilized dollar-rupee buy/sell swaps. Bankers reported these swaps were conducted in very short-dated tenures, targeting specific liquidity dynamics.

This strategy successfully cooled overnight swap rates, which had previously surged due to abundant dollar liquidity from FCNR(B)-related inflows. The cash-tomorrow swap rate consequently fell to approximately 0.75 paisa, a significant drop from its Friday high of 2.8 paisa. The tomorrow-spot rate also slipped to around 0.60 paisa, reflecting the central bank’s comprehensive efforts to maintain currency stability.