The Indian rupee opened 2 paise higher at 95.73 against the US dollar on Tuesday, August 25, as the Reserve Bank of India (RBI) was seen intervening in the foreign exchange market to cushion the currency against elevated crude oil prices and sustained corporate dollar demand.
According to a Reuters report, state-run banks were spotted selling dollars, likely on behalf of the RBI. Traders said sustained intervention by the central bank in recent sessions has helped keep the rupee within a narrow range despite heightened volatility in global markets.
India builds its external buffers
Experts believe that despite challenging global conditions, India has strengthened its external buffers. Inflows under the special USD-INR swap facility have reached nearly $73 billion, including around $65.4 billion through FCNR(B) deposits ahead of the August 31 deadline.
The RBI has also continued to build its foreign exchange reserves. Experts said that as geopolitical tensions persist, the central bank may prefer to utilise incoming dollar flows to strengthen reserves and reduce its outstanding forward positions rather than allow a sharp appreciation in the rupee.
Gold emerges as a key reserve asset
Central banks across the world have also accelerated their gold purchases. Over the past four years, global central banks have bought an average of around 1,000 tonnes of gold annually, nearly double the average recorded during the previous decade.
According to the World Gold Council, 45% of central banks plan to increase their gold holdings further. Experts believe gold is increasingly being treated as a core component of reserve management rather than merely a defensive or emergency asset.
What it means for India
Experts said India faces several challenges amid elevated gold and crude oil prices. The RBI’s gold holdings have reached a record 880.52 tonnes, accounting for nearly 16.7% of the country’s foreign exchange reserves. However, higher gold prices could also increase India’s import bill and add pressure to the current account.
Meanwhile, elevated US bond yields have kept the India-US yield differential relatively narrow, potentially reducing the attractiveness of Indian debt for foreign investors.
Geopolitical risks remain a key concern
Geopolitical developments continue to pose risks for financial markets, experts said. The US has broadened sanctions on Iran, warning countries that continued business ties with Tehran could jeopardise access to the dollar-based financial system. Iran, meanwhile, has signalled its readiness to withstand further economic pressure and respond to additional measures.
For India, the biggest concern remains crude oil. Any disruption to Gulf oil exports could keep a significant geopolitical risk premium embedded in crude prices, potentially worsening India’s import bill and adding further pressure on the rupee.
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Rupee Outlook
According to Amit Pabari, MD, Research Team, CR Forex Advisors, USD/INR is expected to trade within a 95.60–95.80 range in the near term. Once 95.80 is decisively taken out, the pair is likely to move towards 96.20–96.50 with relative ease.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
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