Modi Burns US Dollar Reserves to Stop Historic Indian Rupee Crash

The Reserve Bank of India (RBI) intervened in the foreign exchange market on Monday by selling US dollars to support the Indian rupee after the currency weakened toward a record low, reported Bloomberg.

RBI sold dollars in both the offshore and onshore markets as the rupee fell as much as 0.2 percent to 96.4575 against the US dollar, moving closer to its all-time low of 96.9650 reached in late May.

The renewed pressure on the rupee comes as Brent crude climbed above $90 per barrel, extending gains of more than 20 percent over the past two weeks following escalating tensions between the United States and Iran. Higher crude prices have increased demand for dollars from Indian oil importers, weighing on the local currency.

India imports more than 80 percent of its crude oil requirements, making the economy particularly vulnerable to spikes in global energy prices. Rising oil prices increase the country’s import bill, widen the trade deficit, and put pressure on foreign exchange reserves and the rupee.

The RBI has already taken steps to strengthen the currency. In June, it eased investment rules for domestic bonds and introduced measures to encourage non resident Indians to increase foreign currency deposits. The rupee initially recovered following the announcement but has since surrendered those gains as oil prices continued to rise.

Barclays said higher oil prices and increased demand for dollars from importers are likely to keep the rupee under pressure. The bank expects foreign currency deposits from non resident Indians to increase over the coming months, although it believes inflows may fall short of market expectations.

The RBI has not officially commented on Monday’s intervention. However, the central bank has a history of stepping into currency markets to smooth excessive volatility rather than defend a specific exchange rate.