The Indian rupee fell 10 paise to 95.28 against the US dollar in early trade on Monday, reflecting cautious sentiment in the forex market. Forex traders attributed the decline to the central bank's strategy of rebuilding its reserve position whenever fresh foreign inflows enter the country, rather than allowing the rupee to strengthen significantly.
Rupee opens weaker amid dollar demand
At the interbank foreign exchange, the rupee opened at 95.28, down 10 paise from its previous close of 95.18. The domestic currency had settled at 95.18 against the greenback on the previous trading session. Dealers said dollar demand from importers and a cautious tone in equity markets weighed on the rupee.
Central bank intervention strategy
According to forex traders, the Reserve Bank of India (RBI) is likely to use any surge in foreign inflows to bolster its foreign exchange reserves. "Whenever fresh foreign inflows enter the country, the central bank is likely to use the opportunity to rebuild its reserve position rather than allowing the rupee to strengthen too much," a trader said. This approach aims to build a buffer against future volatility, even if it means the rupee remains under pressure.
Global cues and crude oil impact
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.1% higher at 104.90, adding to the rupee's woes. Brent crude futures, the global oil benchmark, edged up 0.3% to $86.50 per barrel, raising concerns about India's import bill. Higher oil prices typically weigh on the rupee as India is a major crude importer.
Equity market performance
Domestic equity markets opened on a mixed note. The BSE Sensex was trading 50 points lower at 62,800, while the NSE Nifty slipped 15 points to 18,650. Foreign institutional investors (FIIs) were net buyers in the capital market on Friday, purchasing shares worth ₹1,200 crore, according to exchange data. However, the impact on the rupee was muted as the RBI absorbed the inflows.
Outlook for the rupee
Analysts expect the rupee to trade in a narrow range, with the central bank's intervention limiting sharp moves. The rupee has been under pressure due to persistent dollar demand and global uncertainties. The RBI's forex reserves stood at $595 billion as of the previous week, and the central bank is expected to continue its strategy of rebuilding reserves amid volatile global conditions.
