The rupee appreciated 1.2 per cent against the dollar over the past week to close at 95.28 on Tuesday, building on recent gains following the Reserve Bank of India's aggressive intervention measures. However, as per The Hindu BusinessLine, the broader fundamental backdrop remains challenging, with persistent foreign outflows, rising crude oil prices and elevated US Treasury yields posing risks to the local currency. The recovery comes despite ongoing headwinds from sustained foreign investor selling and rising commodity prices that continue to pressure the rupee's value.
The RBI has opened a direct dollar supply window for Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation to meet their daily foreign exchange requirements, shifting an estimated $10-12 billion per month away from the open spot market. As per SBI Research, this represents a significant escalation in support for state-run oil marketing companies. The central bank has also raised the daily cash reserve ratio (CRR) maintenance requirement for banks to 99% from 90%, effective from the reporting fortnight beginning October 16, 2026, while retaining the requirement that the average CRR maintenance over the 15-day period be 100%.
Foreign portfolio selling continued with net FPI outflows standing at about $2.4 billion over the past week, according to NSDL data, taking cumulative outflows in October to $4.7 billion. So far in 2026, net outflows have risen to around $26.8 billion, creating sustained pressure on the rupee. The persistent foreign investor selling reflects ongoing concerns about India's economic fundamentals and policy direction, despite the RBI's aggressive intervention measures. Foreigners have been relentless sellers of Indian stocks with net outflows exceeding $30 billion so far this year as investors shifted funds toward markets offering greater exposure to the artificial-intelligence trade.
Crude oil prices have emerged as a significant headwind, with Brent crude currently trading around $105 per barrel and gaining about 7 per cent so far this month. As per The Hindu BusinessLine, elevated oil prices continue to weigh on the rupee, given India's dependence on crude imports. Additionally, retail inflation accelerated to 5.54 per cent in September from 4.83 per cent in August, exceeding market expectations of 5.4 per cent and marking the highest reading since October 2024. This brings inflation closer to the RBI's upper tolerance limit of 6 per cent, potentially strengthening expectations of further monetary tightening.
Governor Sanjay Malhotra said Tuesday that the central bank would consider further measures, if needed, to curb speculative trading in the market, indicating the RBI's commitment to defending the rupee. According to MUFG Bank, the rupee continues to face a capital inflow problem, with a sharp drop in net foreign direct investment causing the currency to be far more dependent on volatile foreign portfolio inflows than in the past. Finance Minister Nirmala Sitharaman said at the Bloomberg New Economy Forum that the long-term capital gains tax is something on which a lot of people have been commenting, though she would tread cautiously on taxation very close to the budget. From the current level of 95.28, the nearest notable resistance is the 94.90-95 price band, with technical analysis suggesting potential for further volatility as the rupee's rebound may prove short-lived given India's heavy dependence on energy imports.
