The Indian rupee is set to appreciate to 94–94.5/USD in the near term following RBI's stabilization measures, says a JM Financial report. But it warns that high crude oil prices could bring renewed pressure, potentially pushing it towards 97-97.5.
The Indian rupee is expected to appreciate to 94–94.5 against the US dollar in the near term following the Reserve Bank of India's (RBI) recent measures to stabilise the currency, but sustained high crude oil prices could bring renewed pressure, according to a report by JM Financial.
The report said the RBI's measures could provide temporary relief to the rupee by raising the cost of currency hedging, reducing speculative positioning and absorbing excess liquidity from the banking system. However, if crude oil prices rise further or remain at the current level of USD 104 per barrel for a prolonged period, emerging market currencies, including the rupee, could face renewed pressure. "We expect INR to appreciate to 94–94.5/USD in the near term before heading towards 97–97.5….. But if crude price spikes incrementally or even remain at current levels (USD 104/bl) for long, then all EM currencies including INR, could come under pressure," the report stated.
Impact on Bond Yields
The report also highlighted that some market participants had started factoring in a steeper rate hike cycle, leading to a sharp increase in benchmark bond yields. Benchmark yields hardened by 9 basis points to 7.39 per cent, reflecting concerns about liquidity withdrawal at a faster pace than initially anticipated.
RBI's Stabilisation Measures
The RBI has announced a series of measures to stabilise the currency and manage liquidity. These include increasing the minimum daily cash reserve ratio (CRR) maintenance requirement from 90 per cent to 99 per cent of the prescribed CRR, effective from the fortnight beginning October 16, 2026, without changing the CRR itself.
The central bank has also announced open market sale of government securities worth Rs 250 billion to absorb rupee liquidity, in addition to Rs 1 trillion of such sales in September.
Other measures include a 20 per cent Foreign Exchange Risk Reserve (FERR) requirement on specified rupee forex derivative contracts exceeding USD 2 million, tightening unhedged rupee derivative position limits from USD 100 million to USD 5 million, and prohibiting the rebooking of cancelled currency derivative contracts.
The RBI has also strengthened verification and reporting requirements for underlying forex exposures and introduced a special dollar-supply window for oil marketing companies.
Temporary Relief and Future Outlook
The report highlighted that these measures could reduce pressure on the rupee temporarily, particularly through higher hedging costs and restrictions on derivative contracts. However, it cautioned that sustained pressure on the capital account could require the government to consider fiscal measures to attract foreign institutional investor (FII) flows. (ANI)
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