Rupee Dips as Crude Prices and FII Outflows Weigh on Currency

The Indian rupee weakened by 4 paise to 96.39 against the US dollar in early trade on Tuesday, driven by rising crude oil prices and ongoing foreign institutional investor (FII) outflows. However, the local unit found some support from positive domestic equity markets and a weaker dollar index.

At the interbank foreign exchange, the rupee opened at 96.29 but quickly fell to 96.39, down from its previous close of 96.35 on Monday. Analysts noted that the Reserve Bank of India (RBI) has been intervening to prevent a sharper decline beyond 96.33, despite persistent demand for dollars from foreign portfolio investors (FPIs) and oil companies.

Crude oil prices remain a key factor, with Brent crude trading at USD 100.63 per barrel, while the dollar index stood at 102.12. Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors LLP, highlighted the RBI's efforts to stabilize the rupee amid these pressures.

The RBI's Monetary Policy Committee began a three-day meeting on Monday, with expectations of a 25 basis point rate hike to combat inflation risks stemming from the escalating conflict in West Asia. The last repo rate hike was in February 2023, when the rate was raised to 6.50%, before being cut in 2025. Currently, the policy repo rate is at 5.25%.

Meanwhile, the domestic equity markets showed strength, with the Sensex rising 120.22 points to 72,535.41 and the Nifty gaining 47.15 points to 22,603.10. However, FIIs continued to sell equities, offloading Rs 4,699.14 crore on a net basis on Monday.