Indian rupee posts best week in seven months, fundamentals key for lasting turnaround

The Indian rupee climbed 2% over the week, its strongest showing in seven months, Business Recorder reported. The currency finished at 94.96 per dollar, gaining 0.1% during the session, after coming close to breaking the record low of 96.96 reached last week.

Policymakers have acted to support the currency by moving oil-related dollar demand outside the market and making it costlier to hedge against rupee weakness. They also reduced the ceiling on dollar purchases lacking supporting paperwork by 95%, to $5 million. Traders and analysts expect these steps to ease depreciation pressure over the near to medium term, though a sustained recovery without central bank intervention would require wider changes in underlying conditions. Some investors have cautioned that frequent rule changes could weaken policy predictability and fragment liquidity in the currency market.

In a note, Joey Chew of HSBC said the rupee is likely to come under pressure over time unless oil prices collapse, citing India's wider current account deficit, inflation gap, limited portfolio inflows and the central bank's short FX forward position. He suggests the pair could be held down in the near term, with the rupee at 96 by year-end and 98 by late 2027. Meanwhile, the Reserve Bank of India has spent around half of its FX war chest, built through special steps worth over $140 billion.