Indian rupee falls past 95/USD as oil climbs, RBI taps swaps to drain excess cash

According to Business Recorder, the Indian rupee weakened past the 95-per-dollar mark on Wednesday as worsening Middle East tensions pushed Brent crude back above $100 a barrel. The currency still settled at 95.1050, a level that reflects likely intervention by the central bank through spot dollar sales. Iran's Revolutionary Guards said they hit two US ships and eight tankers carrying oil in the Gulf, retaliating for a US strike on Iranian tankers the previous day.

Indian shares also slipped, with Mumbai stocks down about 0.9% alongside weaker regional equities and losses in European markets. Traders also saw the central bank likely using swap contracts due in September and October to absorb surplus rupee cash built up from overseas deposits that lenders swapped with the RBI. Forward premiums on the dollar-rupee pair widened, with dealers pointing to sell-buy swaps for near-term dates.

ANZ, in a research note, listed a mix of steps to handle the liquidity overhang: a staged increase in the cash reserve ratio, measured sell-buy swaps within market absorption capacity, and limited bond sales in the open market concentrated on short-dated paper. ANZ also noted that such swaps could lift forward premia and help the rupee by making hedging more attractive to exporters.