Indian Rupee gains significantly on fresh RBI measures

The Indian Rupee (INR) trades significantly higher against the US Dollar (USD) on Monday. The USD/INR pair falls 1% to near 95.80 as the Reserve Bank of India’s (RBI) fresh measures to curb US Dollar demand have brought relief for the Indian currency.

Over the weekend, RBI unveiled measures to shore up the Indian Rupee, which include catering to the demand for US Dollars by Public Sector Undertaking (PSU) Oil Marketing Companies (OMCs) through central bank’s special window, easing pressure on the spot market and tightening hedging rules, Reuters report.

RBI steps up support for INR with targeted Dollar measures and tighter FX rules

Analysts at MUFG highlight that the RBI has unveiled a “broad package of measures” to ease pressure on the INR, including “a special dollar window to meet dollar requirements by three state-run oil companies.” They add that the central bank has “stopped the re-booking of any FX derivative contract involving rupee that had been cancelled,” while also “introducing an FX risk reserve requirement on transactions that exceed $2mn,” underscoring a more stringent approach to managing currency risk.

According to analysts at ANZ Bank, "Addressing oil ​companies' dollar requirements removes one of the largest sources of demand from the FX market, which should help reduce volatility but it ​will show up in a depletion of reserves.”

Recovery in Oil prices might cap gains

On the geopolitical front, the sharp recovery in Oil prices on Monday after a weak opening could limit the upside for the Indian currency. Crude traded lower in the opening on the announcement of an energy ceasefire between Russia and Ukraine by US President Donald Trump, a scenario in which both parties should have agreed to refrain from launching attacks on energy infrastructure.

As of writing, the MCX Crude Oil contract expiring on October 19 is up 0.33% to near Rs. 8,910 after recovering over 2% losses. Higher Oil prices bode poorly for currencies from economies such as India, which rely heavily on oil imports to meet their energy needs.

“Effective immediately, there is an ENERGY CEASEFIRE in the War between Russia and Ukraine. Both parties have agreed. Do not break it!” Trump wrote on Truth Social.

India's retail CPI rises more than expected

India’s retail Consumer Price Index (CPI) data for September arrives at 5.54% Year-on-Year (YoY), higher than 5.4% estimates and the previous reading of 4.83%. Inflationary pressures have increased significantly due to a significant growth in food prices, but are still within the RBI's tolerance band of 2%-6%.

A faster-than-expected growth in India's price pressures might support the case of one more interest rate hike by the RBI this year. Last week, the RBI hiked its key rates by 25 basis points (bps) and shifted its policy stance from 'neutral' to 'caliberated tightening'.

This week, investors will also focus on US CPI data for September, which is scheduled for Wednesday. The inflation data is expected to have a significant influence on the Federal Reserve’s (Fed) interest rate expectations. Currently, financial markets are confident that the Fed will deliver at least one more interest rate hike this year.

USD/INR Technical Analysis

On the daily chart, USD/INR trades at 95.76, turning bearish as spot falls below the 20-period Exponential Moving Average (EMA) at 96.10. The 14-period Relative Strength Index (RSI) slides vertically to near 45.00, indicating some overnight change in fundamentals.

On the upside, initial support is located at the 20-day EMA near 96.10. Looking down, the pair could extend its decline towards 95.00.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

(This story was corrected at 04:10 GMT on Monday to say in the title that USD/INR drops 1% at open as RBI steps up measures to support Indian Rupee, and not rise.)