The rupee rally continued on Thursday as the Indian currency gained 31 paise to ₹94.86 against the US dollar in early trade. The rise came as Reserve Bank of India (RBI) measures continued to ease pressure on the domestic currency.
The rupee opened at ₹94.95 at the interbank foreign exchange market before strengthening to ₹94.86. On Wednesday, it had gained 19 paise to close at ₹95.17 against the dollar. The latest move extends its recovery, supported by central bank intervention and the unwinding of long dollar positions. However, external economic pressures could limit further gains.
What Is Driving the Rupee Rally?
Recent RBI measures have helped reduce immediate demand for dollars in the spot market. The central bank has introduced steps to curb speculative currency trading, tighten foreign exchange exposure rules, and ease dollar demand from major oil companies.
A special dollar window for state-run oil marketing companies is among the key measures. It allows eligible companies to access dollars through designated banks, helping redirect some demand away from the spot market. These steps aim to reduce pressure on the rupee and improve stability in the foreign exchange market.
According to Amit Pabari, Managing Director of CR Forex Advisors, the rupee's move below the ₹95 range has brought ₹94.80 into focus. A sustained break below that level could lead to another 50–75 paise of appreciation, he said. Lower direct dollar demand from oil companies could also support the currency.
Other market developments have added to the rupee's momentum. The dollar index, which measures the US currency against six major currencies, fell 0.54% to 101.99. Brent crude futures declined 1.66% to $104.30 per barrel.
Key factors influencing the currency include:
- RBI intervention: Measures to manage dollar demand are supporting the rupee.
- Weaker dollar: A decline in the dollar index is providing additional support.
- Lower crude prices: The fall in Brent crude could ease some pressure on India's import bill.
Can the Rupee Continue Its Upward Move?
Despite the recent gains, inflation remains a major concern for the Indian economy. India's wholesale price index (WPI) inflation accelerated to 11.39% from 9.92%, while food inflation rose to 8.66%. Consumer price index (CPI) inflation stood at 5.54%, adding to concerns over price pressures.
Rising inflation has increased market expectations of interest rate hikes over the next 12 months. If tighter monetary policy materializes, higher interest rates could support the rupee by improving interest-rate differentials and attracting carry-trade flows, Pabari said.
However, higher crude oil prices, global economic uncertainty, and foreign investor outflows remain risks. Foreign Institutional Investors (FIIs) sold equities worth ₹1,857.44 crore on a net basis on Wednesday, according to exchange data.
Domestic equities also moved higher in early trade on Thursday. The Sensex climbed 354 points to 73,157.43, while the Nifty gained 96.15 points to 22,726.05.
The rupee's recent appreciation signals improving near-term momentum. However, sustaining the gains will depend on RBI measures, global dollar movements, crude oil prices, inflation trends, and foreign capital flows.
