Indian rupee hits record low past 95 per dollar as relief from RBI’s FX curbs proves fleeting

The Indian rupee slid to fresh record lows, breaching the psychologically significant 95 per dollar mark, as initial relief from the Reserve Bank of India recent foreign exchange curbs quickly faded.

The currency had briefly strengthened after the RBI imposed tighter limits on banks’ foreign exchange positions, a move aimed at curbing speculative trading and stabilizing the market. However, that rebound proved short lived as underlying pressures reasserted themselves, driven by strong demand for dollars from importers and renewed arbitrage activity between onshore and offshore markets.

Market participants said corporates and traders moved swiftly to exploit pricing gaps created by the RBI’s intervention, buying dollars domestically and selling them in offshore markets where rates were more favorable. This activity diluted the impact of the central bank’s measures and added fresh downward pressure on the rupee.

The broader macroeconomic backdrop remains challenging. Surging global oil prices linked to the ongoing Middle East conflict have significantly increased India’s import bill, worsening concerns over the current account deficit and inflation. The rupee has already declined sharply in recent weeks, with analysts warning that sustained energy shocks could push it further lower.

Despite periodic intervention, the RBI has signaled a preference for managing volatility rather than defending a specific exchange rate level. Analysts say this approach reflects the scale of external pressures facing the economy, including capital outflows, a strengthening US dollar, and geopolitical uncertainty.

The breach of the 95 threshold is seen as a critical moment for currency markets, raising concerns about imported inflation and financial stability. Economists note that a weaker rupee increases the cost of fuel and other essential imports, potentially feeding into broader price pressures across the economy.

Investors are now closely watching whether further policy measures or market interventions will be introduced, as India navigates a complex mix of global shocks and domestic economic challenges.