The Indian rupee extended its recovery against the US dollar on Tuesday, October 13, as the Reserve Bank of India (RBI) introduced another round of foreign exchange restrictions, intensifying efforts to contain dollar demand and stabilise the currency.
USD/INR fell to approximately 95.20, down 0.58% during the session, after briefly approaching the 95.00 level. The rupee strengthened to its highest level since early September, building on Monday’s 1% advance, its largest single-day gain in more than six months.
The recovery represents a striking reversal from last week’s record lows near 97.00, when rising crude oil prices, foreign investment outflows and increased demand for dollar hedging placed considerable pressure on the Indian currency.
However, the RBI’s increasingly aggressive intervention has also unsettled parts of the foreign exchange market, raising questions about how long the rupee’s recovery can continue without improvements in India’s underlying economic conditions.
RBI Intervention Pushes USD/INR Lower for a Second Day
The RBI expanded its foreign exchange restrictions on Monday, extending a recently introduced cash reserve requirement to a broader range of hedging transactions undertaken by banks. The revised measures now cover transactions involving banks’ own assets and liabilities, rather than focusing exclusively on certain customer-related foreign exchange exposures.
The central bank has also tightened rules governing non-deliverable forward contracts, restricting how eligible financial institutions can offer rupee derivatives to overseas clients. These changes follow Saturday’s announcement of a special dollar window for three state-owned oil marketing companies: Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum.
By allowing the companies to meet their dollar requirements directly through the RBI, the facility reduces their immediate reliance on the regular spot foreign exchange market. The combined measures are intended to discourage excessive dollar buying and limit speculative activity that could accelerate rupee depreciation.
Tuesday’s gains were also supported by dollar sales from state-run banks, which traders suspect were conducted on behalf of the RBI.The intervention has helped reverse expectations that USD/INR would quickly break above 97.00.
India CPI Inflation Rises to 5.54%, Adding Pressure on the RBI
The rupee’s recovery comes as India’s latest inflation figures point to renewed price pressures. September headline inflation accelerated to 5.54% year-on-year, up from approximately 4.83% in August, according to government data released on Monday. Food inflation climbed to 7.74%, reflecting higher prices for essential household goods.
The increase brings inflation closer to the RBI’s upper tolerance limit of 6%, strengthening expectations that policymakers may need to maintain a restrictive monetary policy stance. Higher interest rates could provide additional support for the rupee by making rupee-denominated assets more attractive. However, further tightening would also increase borrowing costs for Indian businesses and households.
Meanwhile, lower crude oil prices have offered some relief to the currency. Brent crude futures declined approximately 1.1% toward $105.47 per barrel on Tuesday, reducing immediate concerns about India’s energy import costs. Foreign capital outflows remain a challenge. Overseas institutional investors sold approximately ₹1,708 crore worth of Indian equities on Monday, highlighting the external pressures that continue to weigh on the currency.
USD/INR Forecast: Can the Indian Rupee Extend Its Recovery?
The near-term USD/INR forecast favours further rupee strength while the pair remains below 95.75. A sustained break beneath 95.00 could open the way toward 94.80, a level also identified by CR Forex managing director Amit Pabari as a potential near-term target.
However, the durability of the rally remains uncertain. The RBI’s measures have disrupted dollar demand and changed short-term market expectations, but foreign investment outflows and India’s substantial oil import requirements have not disappeared.
Wednesday’s US CPI inflation report will be another important test. Stronger-than-expected US inflation could revive Federal Reserve rate-hike expectations and support the dollar, potentially slowing the rupee’s advance.
For now, the RBI has succeeded in shifting the immediate momentum away from the dollar. The next challenge is maintaining that stability without creating prolonged disruption in India’s foreign exchange market.
The Indian rupee is strengthening because the RBI has tightened currency hedging regulations, introduced a special dollar facility for oil importers and reportedly intervened through state-run banks.
The short-term outlook remains bearish below 95.75, with support at 95.00 and 94.80. A recovery above 96.05 would weaken the immediate bearish outlook.
The RBI has introduced a special dollar window for state-owned oil companies, restricted certain foreign exchange derivatives and expanded reserve requirements for banks undertaking currency hedging transactions.