Oil pangs, FX swap window closure drags Indian rupee to two-week low

MUMBAI: The Indian rupee fell to its weakest level in two weeks on Monday as oil prices drifted higher and sentiment was bogged down after the central bank brought forward the end date for its discounted forex swap facility for overseas deposits by a month.

The rupee declined 0.2% to end at 95.6025 per dollar, but managed to avoid steeper losses on the back of likely intervention by the Reserve Bank of India, traders said.

A broadly weaker dollar offered little respite to the South Asian currency with traders pointing to sustained dollar buying appetite from importers alongside routine flows.

Brent crude oil futures rose about 1% to $89.2 per barrel, amid a lack of progress in diplomatic efforts to resolve Middle East tensions, though the absence of major supply outages limited gains.

Ructions in oil prices remain a key drag for the rupee even as robust dollar inflows triggered by policy measures have shored up India’s balance of payments outlook. The measures have so far brought in nearly $57 billion, lifting FX reserves to a four-month high of more than $700 billion.

“The US-Iran conflict will weigh on the rupee, although recent government measures will support FX inflows and help limit the extent of depreciation,” analysts at BMI said in a note.

They expect the rupee to depreciate to 97 by the end of March 2027 and to 99 by the end of March 2028.

“We do not expect authorities to use the additional FX inflows to actively appreciate the INR through direct interventions in the FX market. Authorities instead appear focused on curbing excessive volatility.”

Global shares edged higher and the dollar index slipped towards two-month lows after a run of soft U.S. economic data, including an unexpected drop in retail sales, led to markets reducing bets for an imminent U.S. rate hike.