Rupee Closes Flat at 95.93 per Dollar as RBI Intervention and Inflows Buffer Fed Rate Hike

The Indian rupee ended flat on Thursday, rebounding from early losses that briefly pushed it past the key 96-per-dollar mark. Suspected market intervention by the Reserve Bank of India (RBI) and institutional capital inflows tied to global equity index rebalancing cushioned the domestic currency against the headwinds of a hawkish US Federal Reserve rate hike.

The domestic unit settled at 95.93 against the US dollar, barely changed from Wednesday's close of 95.9550. In early interbank forex trading, the currency dropped 19 paise to touch an intraday low of 96.10—its weakest level in more than two months—before state-run lenders intervened aggressively to supply dollars and stem further slides.

Rupee Bucks Asian Currency Decline Post-Fed Move

The rupee's steady performance contrasted with broad weakness across regional emerging markets. Asian currencies slipped between 0.1% and 0.6% after the US Federal Reserve raised interest rates by 25 basis points—marking its first increase since 2023—and signaled the likelihood of another rate hike before year-end to tame sticky inflation.

The Fed's policy stance lifted short-dated US Treasury yields to two-year highs and pushed the US Dollar Index above the 100 benchmark to 100.07. Compounding pressure on emerging market currencies, global oil benchmarks remained elevated, with Brent crude trading near $104.80 per barrel despite easing supply concerns.

Strategic Central Bank Actions Limit Currency Losses

Forex traders noted that the price action indicates the RBI is intent on anchoring the currency and preventing speculative bets above the 96 threshold. Beyond direct dollar sales, the central bank employed multiple market tools to keep currency and money markets stable:

• Spot Market Intervention: State-run banks stepped in with heavy dollar sales once the exchange rate weakened beyond 96.00, pushing the pair back into familiar territory.
• Liquidity Drain Operations: The RBI conducted dollar-rupee sell/buy swaps alongside an open market debt sale, which absorbed rupee liquidity amounting to approximately 0.2% of total banking deposits.
• Rebalancing Inflows: Capital inflows associated with scheduled benchmark changes in foreign portfolio indices provided timely dollar liquidity during afternoon trade.

Market Outlook and Impact on Domestic Assets

A stronger dollar combined with crude oil prices above $100 per barrel presents an ongoing challenge for India's trade deficit and imported inflation. In equity markets, the benchmark Nifty 50 ended up 0.23% at 23,270.6, while the BSE Sensex closed largely unchanged at 74,314.59, reflecting cautious sentiment.

Market participants expect the rupee to remain range-bound in the near term, supported by the RBI's substantial foreign exchange reserves, though persistent US rate pressures and high commodity costs are likely to keep domestic bond yields and currency volatility elevated.

Tags: Reserve Bank of India US Federal Reserve USDINR Foreign Exchange Brent Crude