Rupee Weakens Toward 95.68 per Dollar as Brent Surge and Soaring US Yields Strain RBI Defence

The Indian rupee faced fresh downward momentum against the US dollar, with traders pointing to an opening band of 95.62 to 95.68 following a sharp decline in the previous session. On Thursday, the local unit retreated 0.3% to settle at 95.44 against the greenback, marking its steepest single-session decline since mid-July.

The intensifying depreciation reflects twin external shocks: an explosive rally in global energy commodities and elevated US benchmark yields that continue to siphon global capital into dollar-denominated assets.

Escalating Oil Shock and Treasury Yield Pressures

Crude markets have registered a sharp uptrend, with Brent futures and West Texas Intermediate surging well over $100 per barrel—climbing as high as $107 per barrel—following military escalations and tanker strikes in the Middle East. Oil prices posted a weekly surge of more than 6%, triggering acute macro vulnerability for India, which imports over 80% of its petroleum requirements.

At the same time, the US 10-year Treasury yield has hovered near 5%, re-igniting fears of persistent inflation and higher-for-longer global borrowing costs. The strengthening dollar index has broadly dampened emerging market currencies, while foreign institutional outflows and heavy dollar demand linked to corporate hedging and derivative maturities have compounded pressure on the domestic exchange rate.

RBI Intervention and Liquidity Measures

The Reserve Bank of India (RBI) has actively stepped in to manage excessive volatility, but market participants note that the scale of intervention has become more selective against unrelenting global tailwinds.

Key Intervention Highlights:

• Reserve Deployment: Bankers reported that the RBI deployed at least $8 billion in the previous trading week to keep the rupee supported around the 95.00 mark.
• State Bank Dollar Sales: State-run banks were spotted selling dollars on behalf of the central bank on Thursday, though traders noted the volume was noticeably more moderate than the previous week's aggressive interventions.
• Sell/Buy Swap Operations: To absorb surplus rupee liquidity without permanently burning foreign exchange buffers, the RBI executed dollar-rupee sell/buy swaps across September and December maturities.
• Forward Premiums Surge: These liquidity operations drove the one-year annualised implied forward rate up nearly 30 basis points across two sessions to 3.37%, touching its highest level since late May.

Implications for the Indian Economy

The persistent pressure on the rupee presents immediate challenges for policymakers and market participants across India. Elevated landed crude costs threaten to feed into factory gate prices and transport logistics, complicating the domestic inflation trajectory.

Importers, particularly in oil marketing, chemicals, and consumer electronics, face higher input costs and widening hedging expenses as forward premiums jump. For domestic equity and debt investors, prolonged rupee weakness and elevated US yields could sustain foreign portfolio outflows, keeping broader market sentiment subdued until crude markets stabilise and central bank monetary policies offer greater clarity.

Tags: Reserve Bank of India Indian Rupee Crude Oil US Treasuries Forex Markets USD/INR