US Dollar/Indian Rupee FX Spot Rate

MUFG analysts Lin Li, Michael Wan, Lloyd Chan and Khang Sek Lee say the Reserve Bank of India's finely balanced decision on 7 October will drive Asia FX, with the central bank expected to keep tightening risks alive. The MUFG team frames the RBI's upcoming policy call as the key catalyst for regional currency markets. The analysts did not specify the size or direction of any expected rate move, only that the decision is finely balanced. The 7 October meeting is the focal point for their Asia FX outlook.

JPMorgan Chase & Co chief India economist Sajjid Chinoy expects the Reserve Bank of India to raise rates at its October 5 meeting and to strike a cautious or hawkish tone signaling more tightening may be in the pipeline. Speaking with Bloomberg Television's Paul Allen, Chinoy said inflation, which averaged 2% over the past year, will run close to 6% over the next quarter and stay between 5.5% and 6% in the first half of 2026, driven by pipeline pressures, higher energy prices, global tech inflation and building El Nino pressures. With policy rates at 5.25%, he said the first 50 basis points of hikes amount to normalization or recalibration to more normal inflation, and he expects a 25 basis point hike in October followed by one more in December. He said the length of the cycle depends on whether the RBI forecasts inflation falling quickly back to 5% or below after peaking at 6% in three quarters, and on how broad-based the inflation pressures become, including whether strong demand emboldens producers to pass pipeline pressures into output prices and makes core inflation sticky. Chinoy also said the large influx of FCNR flows gives India more ammunition against a hostile global backdrop but has created a liquidity overhang that leaves monetary conditions more accommodative than interest rate levels suggest, making it important for the RBI to hike next week, signal more may come, and aggressively sterilize those flows to prevent overnight rates falling below the policy rate.

The Reserve Bank of India announced a plan to sell 1 trillion rupees of government bonds, or about 10.5 billion dollars, to drain excess liquidity from the banking system. It is the RBI's most aggressive measure to date, sending Indian government bonds lower and yields higher. The bond with a 6.94% coupon maturing in 2036 rose 7 basis points to 7.09%, while the bond with a 6.36% coupon maturing in 2031 jumped 16 basis points to 6.78%, after Indian markets reopened on Tuesday. The bond sale will be conducted in three rounds, with the first set for September 17, when the central bank will sell bonds with about 3 to 6 years of remaining maturity. Pressure is also building from the Indian central government's borrowing plan through nearly 8 trillion rupees of bond issuance over the next six months, compounded by high oil prices and August inflation that moved closer to the upper end of the 2-6% target range. Citigroup expects the RBI may raise interest rates by a total of 50 to 75 basis points, with the hiking cycle possibly beginning as early as next month. VRC Reddy, head of treasury at Karur Vysya Bank, said 5-year bonds have been particularly hard hit and expects India's yield curve to steepen, with the spread between 5-year and 10-year bond yields likely holding at around 20 to 30 basis points.

The Reserve Bank of India appears to have intervened in the foreign exchange market on the 11th to stem the rupee's decline. According to multiple market participants, the move comes as rising crude oil prices and US Treasury yields put pressure on the Indian rupee. The rupee at one point fell 0.4 percent to 95.7925 per dollar, but later pared its losses and was recently trading at 95.71. The central bank appears to have conducted dollar-selling, rupee-buying swaps for a third consecutive trading day on the 11th, part of measures to absorb excess rupee liquidity from the banking system, and the scale was modest.

The Reserve Bank of India (RBI) appears to be conducting near-term dollar-selling, rupee-buying swaps to absorb excess rupee liquidity arising from domestic banks' acceptance of overseas deposits. According to banking sources, the central bank has conducted swaps maturing in September and is likely to have also conducted swaps maturing in October. Traders said this has led to a rise in forward premiums for September and October contracts, with the increase spilling over to other tenors. Two other banking sources estimated that the central bank conducted swaps totaling about $700 million across both maturities. Banks have seen a surge in dollar deposits from non-resident Indians, which are converted into rupees at no cost through swaps with the central bank, leaving the banking system awash with rupee liquidity. IDFC First Bank's chief economist, Gaura Sen Gupta, estimated that core liquidity surplus peaked at 14-15 trillion rupees ($147.26 billion-$157.78 billion) and expects the central bank to aim to absorb about 7 trillion rupees through tools such as variable rate reverse repos (VRRR).

The Reserve Bank of India (RBI) has used currency swap transactions to absorb liquidity from the banking system, after excess cash levels surged to a record high of around 11 trillion rupees, or approximately 115 billion dollars. The RBI conducted short-term sell-buy foreign exchange swaps, some of which will mature in October. Under these transactions, the RBI sells dollars to banks in exchange for rupees and agrees to buy them back later, thereby temporarily draining rupee liquidity. This move has led to an increase in the three-month dollar-rupee forward rate by 17 basis points to 2.97%, and the six-month rate by 11 basis points. The large excess liquidity has reduced banks' funding costs and could stimulate credit demand and add to inflationary pressures. Investors are watching whether the RBI will take additional measures to manage the excess cash. The use of currency swaps reflects an effort to manage liquidity without relying solely on interest rate adjustments.

The Indian rupee strengthened to its highest level in over a month after the Reserve Bank of India (RBI) raised $136 billion from foreign sources, far exceeding expectations. On Thursday, the rupee appreciated 0.7% to 94.2713 per dollar, its strongest level in over a month, and traders expect further gains. The fundraising measures included a special scheme that attracted about $127 billion in dollar deposits from Indians abroad, plus two other schemes totaling $9.15 billion, bringing the total to $136 billion, well above RBI Governor Sanjay Malhotra's estimate of just $80 billion. Analysts at MUFG Bank noted that the risk of a sharp rupee depreciation has diminished, and the RBI has more ammunition to defend the currency. Meanwhile, Shinhan Bank expects the rupee could strengthen to 93.50 per dollar in the coming days. The measures, initiated in June, were aimed at offsetting capital outflows that had pressured the rupee to record lows and helping reduce India's import costs amid surging oil prices due to the US-Iran conflict.

MUFG analyst Michael Wan highlights India's strong GDP data, with Q1 FY2026-27 growth at 7.8% year-on-year versus a 7.1% consensus. Resilient domestic demand, robust credit growth, and supportive fiscal policy underpin his view that Indian rates are likely to grind higher.

Indian Prime Minister Narendra Modi has urged citizens to avoid buying gold unless necessary, in order to reduce imports and ease pressure on the rupee amid a widening trade deficit. India's gold imports surged more than 32% in the first four months of the fiscal year starting in April, and the trade deficit in July hit nearly $32 billion, the highest since January. Modi said in a video on platform X, "If not necessary, don't buy gold," while also urging citizens to support domestic goods and reduce travel abroad. This is the second time this year he has asked citizens to reduce gold purchases, after in May he requested Indians to refrain from buying gold for at least one year to preserve foreign exchange reserves, amid reports that the government may consider reducing import taxes on gold and silver after previous tax hikes proved ineffective. Gold is India's second-largest import item after oil, and India is the world's second-largest gold buyer.

The Reserve Bank of India (RBI) has increased the frequency of its market interventions to support the rupee, following inflows of about $73 billion in new funds under measures to attract dollar deposits since June. It has shifted from intervening only during sharp currency moves to regular intervention when the rupee weakens, and has at times sold up to $7 billion in a single day in both domestic and offshore markets. This has brought short-term rupee volatility down to near its lowest level in 10 months, despite persistent pressures from higher oil prices and a narrowing interest rate differential with the United States. The situation has surprised some investors, as the market had grown accustomed to higher rupee volatility under RBI Governor Sanjay Malhotra. The rupee has weakened about 0.8% this quarter, a marked improvement from the January-March period when it fell 5.2%. Meanwhile, importers' demand for forward dollars has risen 40% to about $60 billion per month, and the RBI must also manage the burden of future forward dollar sales worth over $100 billion, without having raised interest rates to protect an economy facing the impact of the Iran war.

Minutes of the Reserve Bank of India's monetary policy committee meeting held on the 5th of this month show that several members hinted at the possibility of raising interest rates going forward. The committee kept the benchmark repo rate unchanged at 5.25 percent and maintained a neutral policy stance, but indicated it was watching for signs that supply-driven inflation may be spreading across the broader economy. Governor Malhotra said vigilance must not be relaxed because the risk of food and fuel price increases causing a broader rise in inflation persists, and monetary tightening may be needed if signs of those risks materialising emerge. Deputy Governor Gupta said there is no room for further monetary easing, and that grounds for a rate hike could in fact emerge during fiscal 2026. External member Ram Singh also expressed the view that policy should be adjusted quickly to protect macroeconomic stability if external shocks worsen.

India's consumer price index for July, released by the government on the 12th, rose 4.45% from a year earlier, accelerating on the back of higher food prices. The figure was broadly in line with the market forecast of a 4.5% increase and exceeded the central bank's medium-term target of 4% for a second straight month, but remained comfortably within the tolerated range of 2% to 6%. The central bank last week kept its policy rate unchanged and signalled it would wait for upcoming data to assess whether higher oil prices are adding to inflationary pressure. Alexandra Hermann Prasad, lead economist at Oxford Economics, noted that the central bank can afford to be patient for now, but not indefinitely, and expects policymakers to hold off on a rate hike in October before delivering a 25 basis point increase in December. Food inflation rose to 5.52% in July from 5.32% in June, against the backdrop of deficient monsoon rainfall. According to India Ratings and Research, core inflation, which strips out volatile food and fuel prices, came in at 3.9%, below the expected 4.08%.

Reserve Bank of India Governor Sanjay Malhotra revealed that the BRICS group is discussing the possibility of linking fast payment systems and central bank digital currencies among member countries to reduce cross-border transaction costs. He noted that the discussions are still in the early stages and no conclusions have been reached. Meanwhile, the RBI will continue to promote the international use of the rupee and encourage the use of local currencies in international trade. Malhotra also addressed the use of artificial intelligence in the banking sector, viewing it as a technology that should be harnessed for its benefits, and called on financial institutions to maintain an inventory of AI models and establish governance policies approved by their boards.

Central banks in Asia's emerging markets are adjusting their strategies to cope with weakening currencies, increasingly turning to measures that attract foreign exchange inflows rather than relying solely on selling foreign reserves to intervene in markets. The Thai baht, Indonesian rupiah, and Indian rupee are among the five worst-performing currencies this year out of 22 emerging-market currencies tracked by Bloomberg. India has attracted nearly 40 billion dollars from overseas Indians through high-yield dollar deposit products. South Korea is pushing exporters to repatriate dollar earnings, leading the won to post its strongest monthly gain since 2022. Indonesia has drawn about 1.6 billion dollars in foreign capital into its bond market over the past two months. Meanwhile, foreign reserves of Indonesia, India, the Philippines, and Thailand have fallen by around 4 to 9 percent since the Iran conflict began. Analysts at MUFG Bank expect Indonesia and the Philippines may each raise interest rates twice this year, while South Korea could hike at least once more.

ING economists Deepali Bhargava and Lynn Song note that the Indian Rupee has given back much of its June gains as US–Iran tensions and rising oil prices hurt sentiment. They expect foreign inflows to support the currency against the US Dollar going forward.

OCBC analysts Christopher Wong and Sim Moh Siong said the Indian rupee is supported by lower oil prices and strong capital inflows. They noted that the Reserve Bank of India's decision to hold the repo rate at 5.25% while lowering inflation forecasts and nudging growth higher has put India's balance of payments on track for a healthy surplus.

The Reserve Bank of India unanimously decided to keep the policy rate at 5.25% at its meeting today, while maintaining a neutral monetary policy stance. All six members of the Monetary Policy Committee voted in favor. The central bank also raised its GDP growth forecast for the current fiscal year to 6.7% from 6.6%, and lowered its average inflation forecast to 5% from 5.1%. The core inflation forecast was cut sharply to 4.3% from 4.7%. RBI Governor said headline inflation has risen above target due to higher fuel prices, but overall price pressures remain under control, and the RBI will not rush into any action until there is more clarity on the inflation situation.

Indian shares are expected to open cautiously on Tuesday after four straight sessions of gains, with investors awaiting the Reserve Bank of India's monetary policy decision on Wednesday. The RBI is widely expected to keep the repo rate unchanged at 5.25 percent for a fourth consecutive meeting and maintain its neutral stance. On Monday, the Sensex rose 0.7 percent and the Nifty surged 1.6 percent, helped by a sharp drop in crude oil prices and sustained foreign institutional investor inflows. Foreign institutional investors net bought shares worth Rs 922.26 crore, while domestic institutional investors net bought Rs 1,571.18 crore. The rupee extended its winning streak to a sixth session, settling 12 paise higher at 95.31 against the dollar.

The global economic calendar for the week of July 31 to August 6, 2026, features several key highlights. On Friday, July 31, the Bank of Japan will hold its monetary policy meeting and announce its interest rate decision, while China will release the July manufacturing and services PMI from the National Bureau of Statistics, and the US will report the final University of Michigan consumer sentiment index. Then on Monday, August 3, several countries will announce final manufacturing PMI figures from S&P Global, including the US which will also report the ISM manufacturing index. On Tuesday, August 4, the US will release the June Job Openings and Labor Turnover Survey, or JOLTS, and factory orders. On Wednesday, August 5, Indonesia will report second-quarter GDP, the Reserve Bank of India will announce its policy rate, and the US will have the ADP private employment report, as well as the final services PMI and the ISM services index. The week wraps up on Thursday, August 6, with the Central Bank of Brazil announcing its interest rate, and the US reporting weekly jobless claims.

India's central bank intervened in the currency market by selling around 7 billion US dollars to support the rupee and prevent it from weakening to a record low. This marks one of the largest direct exchange rate interventions in several months. Sources said the Reserve Bank of India intervened in both onshore and offshore markets after the rupee weakened close to its all-time low, though it has not officially confirmed the information. The move came after crude oil prices surged, impacting oil-importing countries in Asia including India. Following the intervention on Friday, the central bank continued selling dollars over the next two trading days, helping the rupee recover and move away from its record low. The rupee was last trading at 95.7437 per US dollar, still only about 1.3 percent above its all-time low.

Indian shares are expected to open cautiously on Tuesday, tracking weak global cues. A continued decline in oil prices, with Brent crude falling below $88 a barrel for a third straight session, and mounting doubts over returns from artificial-intelligence spending may support sentiment later in the session. Benchmark indexes Sensex and Nifty jumped around 1 percent each on Monday, snapping a five-day losing streak, while the rupee rose by 68 paise to close at 95.88 against the dollar, its biggest single-day gain in seven weeks. RBI Governor Sanjay Malhotra said banks have mobilized nearly $32 billion, largely through FCNR(B) deposits, and the central bank remains committed to currency and financial stability. Foreign investors net sold shares worth Rs 1,688 crore on Monday, while domestic institutional investors net bought shares worth Rs 2,329 crore.

First Abu Dhabi Bank is reportedly offering up to $1.5 billion in financing to non-resident Indians investing in India's foreign-currency deposit program. The UAE's largest lender is targeting customers across the Middle East and discussing arrangements with Indian banks that could provide standby letters of credit to support the funding. The facility is part of a wider effort to attract overseas funds as New Delhi looks to rebuild foreign-exchange reserves and slow the rupee's decline, with analysts estimating the program could bring in about $50 billion in deposits. The proposed structure would allow customers to borrow against their foreign-currency deposits at nine times leverage, potentially increasing foreign-currency inflows without requiring full deposit contributions. Under the special program announced in June, the Reserve Bank of India is absorbing the full hedging cost for lenders raising three- to five-year foreign-currency deposits, and some lenders are offering interest rates of up to 7.75% on five-year deposits.

Indian shares are expected to open cautiously on Wednesday as investors weigh geopolitical and trade tensions against positive global cues. U.S. President Donald Trump announced a phased tariff plan on imported generic medicines, with zero tariffs until August 2028, then rising to 100 percent and later 200 percent to incentivize U.S. manufacturing. Benchmark indexes Sensex and Nifty fell around 0.3 percent and 0.2 percent respectively on Tuesday, while the rupee rose 21 paise to close at 96.24 against the dollar amid strong foreign exchange inflows. Banks have mobilized over $20.7 billion under the RBI's swap facility since June, with analysts expecting total inflows of $60-70 billion by the window's close. Foreign institutional investors turned net buyers of Indian equities worth Rs 1,650.16 crore on Tuesday, while domestic institutional investors were net sellers of Rs 656.88 crore. Asian markets were broadly higher, driven by a rebound in semiconductor shares after South Korea's semiconductor exports surged 180 percent year-on-year in the first 20 days of July, and Brent crude rose above $92 a barrel as Trump played down near-term talks with Iran and warned of potential strikes on Iran's Pickaxe Mountain near Natanz.

Indian shares are expected to open cautiously on Friday, with IT stocks likely under heavy selling pressure after Accenture narrowed its revenue growth guidance to 3-4 percent from 3-5 percent in constant currency terms and warned that client budgets have not been increasing even with AI. Broader sentiment may be supported by easing geopolitical tensions after a U.S.-Iran preliminary peace deal took effect, leading to the resumption of shipping through the Strait of Hormuz and the U.S. Central Command lifting restrictions on traffic to and from Iranian ports. Benchmark indexes Sensex and Nifty edged up around 0.3 percent each on Thursday, extending gains for a fifth straight session, while the rupee settled 14 paise higher at 94.36 against the dollar, a six-week high. Foreign institutional investors net sold shares worth Rs. 1,025 crore on Thursday, while domestic institutional investors net bought shares worth Rs. 3,517 crore.

The Indian rupee rallied to a six-week high on Thursday, reaching an intraday peak of 94.2175 per U.S. dollar, its strongest since May 7, before settling at 94.2925, up 0.25% on the day. The gains were driven by exporter flows and offshore dollar selling, which reversed early losses that had pushed the rupee to 94.70 after a hawkish Federal Reserve outcome. Nine of 18 Fed policymakers pencilled in a rate hike this year, far more than anticipated, with one projecting three 25-basis-point hikes over the next six months and five projecting two. Markets are now pricing in 32 basis points of rate hikes this year and a cumulative 42 basis points by this time next year, according to ING. A further decline in oil prices also supported the rupee, with Brent crude futures falling 2.5% in Asian trade to $77.58 per barrel after the U.S. and Iranian presidents signed an interim peace deal.