The Reserve Bank of India is believed to be selling dollars through state-run banks to contain rupee volatility as the Iran conflict, oil prices and global market uncertainty weigh on the currency.
RBI Supports Rupee
The Reserve Bank of India (RBI) is believed to have intervened in the foreign exchange market on Monday to support the rupee amid heightened global uncertainty linked to the Iran war and broader market pressures.
Five traders cited by Reuters said state-run banks were seen selling US dollars, likely on behalf of the central bank. The intervention helped keep the rupee relatively stable during early trading.
Rupee Holds Near 96
The Indian currency opened around โน95.64 per US dollar on Monday, remaining within a narrow range despite pressure from geopolitical tensions, crude prices and strong demand for the dollar from importers.
The rupee later closed at around โน95.7450 per dollar, with continued RBI intervention helping limit daily volatility. Traders expect the currency to remain broadly rangebound in the near term.
Iran War Adds Pressure
The ongoing conflict involving Iran has created fresh risks for oil-importing economies such as India. Higher crude prices can increase the country's import bill, widen external pressures and raise demand for US dollars.
India imports nearly 90% of its crude oil requirements, making the rupee particularly sensitive to disruptions in Middle Eastern energy supplies.
Oil Prices Drive Concerns
Oil prices have remained a major factor behind recent pressure on the Indian currency. Rising energy costs increase the amount Indian companies need to pay in dollars for imports.
Reuters reported that crude prices had gained more than 5% during the previous week amid concerns over supply disruptions linked to the Iran conflict.
Any prolonged disruption to oil supplies could therefore keep pressure on India's external accounts and the rupee.
RBI Uses Dollar Sales
The central bank's strategy has focused on preventing disorderly movements rather than targeting a specific exchange rate.
State-run banks have repeatedly been seen selling dollars during periods of sharp rupee weakness. Such intervention can increase dollar supply in the domestic market and reduce short-term volatility.
Recent intervention has already helped keep the rupee from moving decisively beyond the โน96-per-dollar level, according to market participants.
Forex Reserves Provide Cushion
The RBI has significant foreign-exchange resources to manage periods of market stress. India's forex reserves rose to a six-month high of $716.9 billion as of August 14, according to Reuters.
The reserves increased by almost $10 billion in one week, helped by a rise in foreign currency assets and gold holdings. Over the previous seven weeks, India's reserves had increased by roughly $50 billion.
Strong capital inflows have consequently strengthened the RBI's ability to manage currency volatility.
Global Risks Remain
The rupee's near-term outlook will depend on several factors, including developments in the Iran conflict, crude oil prices, US monetary policy, foreign investment flows and corporate dollar demand.
Traders expect the rupee to remain broadly within the โน95.50-โน96.50 range in the near term, although a sustained decline in oil prices could provide some relief.
For the RBI, the immediate priority is likely to be maintaining orderly currency markets while preserving sufficient foreign-exchange buffers to respond if geopolitical and commodity-market pressures intensify.
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