The Indian rupee defied regional weakness on Wednesday, ending the day at 94.6650 against the US dollar, marginally stronger than Tuesday's close of 94.7350, according to The Economic Times. Dollar sales by state-run banks, most likely on behalf of the Reserve Bank of India, helped support the currency as Asian peers faltered under broader dollar strength. The currency bucked the weakness seen across most Asian currencies, with the Korean won down nearly 1% leading regional losses. While the rupee endured losses in early trading, the central bank's intervention provided crucial support against the strengthening dollar.
Global oil markets reacted positively as geopolitical tensions showed signs of easing, with Brent crude futures declining to $75.60 per barrel, the weakest level since February 27, a day before initial US-Israeli strikes on Iran, as reported by Reuters. The progress in US-Iran talks helped push Brent crude down, easing pressure on oil-importing economies including India. This development is expected to provide significant relief for Indian investors and the broader economy, offsetting some of the earlier concerns about potential disruptions to energy supplies.
The Reserve Bank of India has issued a stark warning about potential risks from any breakdown of the interim US-Iran peace agreement, according to the latest RBI Bulletin. RBI officials cautioned that a breakdown of the interim US-Iran peace agreement may reignite material risks in terms of inflationary expectations, disrupted critical energy infrastructure, delayed investment spending, food security concerns, adverse financial stability outlook and structurally lower growth. The uncertainties could have an impact on the outlook through international trade, cost pressures, capital flows and commodity prices, as noted in the central bank's monthly bulletin. The RBI kept interest rates unchanged earlier this month as policymakers assess whether elevated oil and food prices could trigger broader inflationary pressures across the economy.
RBI Chief Sanjay Malhotra reiterated that the central bank does not target any level for the rupee and instead intervenes only to curb disorderly moves in the FX market, as reported by The Economic Times. Malhotra said the central bank was watching for second-round effects of higher oil prices on inflation in the broader economy before taking a call on rates. Hawkish Fed expectations combined with the Indian central bank chief's remark that it's "premature" to talk about rate hikes knocked down dollar-rupee forward premiums on Wednesday. The 1-year dollar-rupee forward implied yield eased 9 bps to 2.83%, tracking a similar sized move in the 1-year overnight index swap rate, which fell to 5.74%, its lowest since March 12.
Despite global uncertainties, RBI officials noted that the Indian economy entered this turbulence with much better fundamentals relative to many other countries to sustain the shock. The central bank highlighted that India maintained a consistently high growth, anchored inflation expectations, sustained fiscal consolidation, manageable current account balance and foreign exchange buffers over the previous few years, which adds to its strength vis-à-vis similar events in the past. The Indian economy displayed strength in terms of the provisional GDP estimates of 7.7% for 2025-26, with GDP growth during Q4:2025-26 remaining robust at 7.8%, driven by private consumption and fixed investment.
