Indian rupee posts best month in eight on RBI measures to curb dollar demand

MUMBAI: The Indian rupee strengthened on Friday to post its best monthly gain since February, bolstered by policy measures to support the currency by curbing dollar demand even as elevated oil prices and persistent portfolio outflows keep up pressure on the unit.

The Indian rupee closed at 94.95 per dollar, up from its close at 95.26 in the previous session.

The currency rose about 1% month-on-month, its strongest performance since a breakthrough in US-India trade negotiations lifted the spectre of heavy tariffs and sparked a rally before conflict in the Middle East renewed pressure.

Since the Iran war broke out in early March, the Reserve Bank of India has taken a series of measures to support the currency including steps to attract capital inflows and cool surging dollar demand.

Earlier in October, the RBI unveiled steps to shore up the rupee by redirecting oil companies’ dollar purchases away from the spot market and tightening hedging rules as the currency hovered near its all-time low of 96.96 hit in May.

The central bank’s measures to supply dollars directly to public oil marketing companies and curb currency speculation will help buffer the exchange rate and mitigate imported inflation, India’s finance ministry said in its October economic review.

The RBI also delivered its first rate increase in nearly four years in October and signalled more are likely to come even though policymakers are wary of an aggressive tightening cycle over risks to growth.

The impact of the measures, combined with market interventions by the central bank, helped the rupee outperform most Asian peers in October but analysts reckon elevated oil prices remain a risk for the currency.

“While higher oil prices may continue to weigh on the current account, we expect healthier capital flow dynamics and the RBI’s broad policy toolkit, including the potential to raise rates if necessary, to keep the Rupee rangebound,” analysts at Goldman Sachs said.