Rupee Hits 10-Week High as RBI Scheme Draws Heavy Dollar Inflows

The Indian rupee has reached its highest level in over two months after experiencing significant dollar inflows under the Reserve Bank of India's special scheme. On Thursday, the currency closed at a 10-week high of 94.4850 per U.S. dollar, with a daily gain of 0.5%.

The rupee had opened at 94.30 per dollar but trimmed its gains to 94.49 as importer demand picked up during the session. The Reserve Bank of India's (RBI) special measures drew in far more inflows than economists had expected, which has strengthened the central bank's hand in managing the currency.

Kunal Sodhani, head of treasury at Shinhan Bank, commented that the RBI can now use its recently acquired firepower to manage the rupee actively, rather than just defending it against depreciation. He noted that the RBI can sell dollars on sharp rallies and absorb them on deeper dips to rebuild reserves and manage forward-book exposure.

However, elevated oil prices remain a concern for importers due to renewed military tensions between the U.S. and Iran. A sustained rise in oil prices would widen India's import bill and put pressure on the trade deficit, making importers more inclined to lock in their dollar requirements.