The Reserve Bank of India intervenes to curb the rupee's decline, but risks remain

智通财经2026/10/08 10:36

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(1) The Indian rupee was defensive on Thursday, pressured by a sharp rise in oil prices and overall weakness in Asian currencies, while possible central bank intervention prevented the rupee from testing the record low set five months ago. (2) The rupee closed largely flat against the U.S. dollar near 96.78, just shy of the historic low of 96.96 reached in May. (3) Persistently high oil prices, soaring developed market bond yields, and sluggish capital flows have weighed on the rupee this year, with its year-to-date decline against the dollar exceeding 7%, ranking among the worst performers in the region. (4) Ongoing intervention by the Reserve Bank of India has provided some market relief, but traders still see no reason to be bullish on the rupee. (5) According to a hedge fund FX trader, the question now is whether the central bank will allow the 97 threshold to be breached, and whether the market will attempt to push the rupee towards the 100 level. (6) Investors believe India’s first rate hike in nearly four years is unlikely to slow or reverse the record capital outflows, with the central bank still grappling with a vicious cycle of currency depreciation and rising inflation amid an unfavorable global environment. (7) Adverse global factors intensified again, with Brent crude surging over 4% to above $104 per barrel as concerns over Middle East supplies persisted and incidents of shipping attacks in the Gulf and Strait of Hormuz increased. (8) Asian currencies fell across the board, and the U.S. dollar index hovered near a more than one-year high after Federal Reserve meeting minutes showed policymakers viewed inflation as the biggest risk to the outlook. (9) According to one agency report, currency markets have fully priced in the Fed’s hawkish stance: after expecting a 25bps rate hike to 4.25% in December, the market still anticipates a further tightening of 50bps next year, which the agency considers overly aggressive, but doubts whether the market will be willing to challenge hawkish pricing this year. (10) Further attention will be paid to the extent of intervention by the Reserve Bank of India, oil price trends, and the Federal Reserve's policy path regarding their impact on the rupee and regional capital flows.

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