The rupee rose against the US dollar for a second straight session on Monday, settling at 94.71, up 0.4% from the previous close of 95.11, according to Reuters. During the session, the currency touched 94.4625, its strongest level in five weeks. The rally was driven by a sharp decline in crude oil prices after a preliminary US-Iran agreement to end the conflict and reopen the Strait of Hormuz, as well as by the Reserve Bank of India's (RBI) June 5 measures to attract dollar inflows, when the central bank left interest rates unchanged and retained its "neutral" policy stance.
Crude Oil Plunge and US-Iran Agreement
Brent crude fell more than 5% to about $83 a barrel on Monday, providing relief to India, which imports nearly 90% of its crude oil requirements. The drop followed news of a preliminary US-Iran agreement that reopened the Strait of Hormuz, a critical chokepoint for global oil shipments. Lower oil prices reduce India's import bill and ease pressure on the current account deficit, a key factor for the rupee's strength.
RBI Measures and Dollar Inflows
The RBI's June 5 policy measures — including leaving interest rates unchanged and maintaining a "neutral" stance — have boosted expectations of stronger dollar inflows. Economists have upgraded their forecasts for India's balance of payments, with many now expecting a small surplus instead of the sizeable deficit projected earlier. However, the central bank's large short dollar positions in the foreign-exchange market, which climbed to a record $104 billion in March, highlight its efforts to support the rupee and may influence its willingness to allow further appreciation.
| Key Metric | Value |
|---|---|
| Rupee close (June 15) | 94.71 per USD |
| Previous close | 95.11 per USD |
| Intraday high | 94.4625 per USD |
| Year-to-date decline | 5.6% |
| Record low (May) | ~97 per USD |
| Brent crude price | ~$83/bbl (-5%) |
| RBI short dollar positions (March) | $104 billion |
Trader and Economist Reactions
Traders said lower oil prices and the prospect of stronger dollar inflows could provide support to the rupee in the near term. Victor Roy, head of treasury at CTBC Bank, told Reuters: "The news of war ending is a positive development for the currency, but we may not see a one-way rally and the currency could move towards 93.25 in the near term." Economists have also revised their balance-of-payments forecasts upward following the RBI's June 5 measures.
Near-Term Outlook
The pace of any further rupee appreciation could depend on the RBI's willingness to allow gains, traders said, as the central bank may use the currency's strength to reduce its large foreign-exchange forward positions. The currency's year-to-date decline against the dollar has narrowed to 5.6%, after hitting a record low of nearly 97 per dollar last month. For importers, a stronger rupee reduces input costs, particularly for crude oil and other commodities, while exporters may face margin pressure. The RBI's record short dollar positions suggest it has been actively intervening to support the rupee, and any further appreciation could allow it to unwind those positions.
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