India rupee posts weekly fall despite rate hike amid adverse flows, weak sentiment

Business Recorder reported that the Indian rupee closed flat at 96.73 per dollar on Friday, yet still recorded a weekly decline. This happened even though the Reserve Bank of India raised interest rates for the first time in almost four years, a move that did little to lift the currency. The rupee remained close to its record low of 96.96, set in May, as importer hedging and persistent foreign portfolio outflows from equities weighed on it.

State-run banks were reportedly selling dollars, most likely for the central bank, which helped contain the fall according to traders. Frequent RBI interventions and elevated hedging by importers have kept rupee weakness in check. Analysts polled by Reuters see the currency staying near record lows for between three and six months.

MUFG forecasts a gradual climb to 97.50 per dollar by September 2027, with the RBI's sizeable reserves expected to limit gains. India's forex reserves slipped for a fourth straight week to $734.6 billion as of October 2, roughly $50 billion below their September peak. The currency has gained little from a modest easing in oil prices and the dollar, which have both retreated from recent highs.