Rupee Under Pressure as Oil and RBI Shift Weigh on Sentiment

Key Moments

Oil Strength and Geopolitics Undermine Rupee

The Indian Rupee (INR) continues to trade on the back foot against the US Dollar (USD), hovering near its two-week low around 95.75. The USD/INR pair remains under pressure as crude prices stay firm, while there are no ongoing talks between the United States and Iran on reopening the Strait of Hormuz, a key route for nearly one-fifth of global energy flows.

At the start of the trading session, the MCX Crude Oil futures contract expiring on August 19 was up 0.6%, trading near Rs. 8,130. That level is close to the three-week high of Rs. 8,170 reached on Tuesday. Currencies from economies that depend heavily on imported oil, such as India, typically weaken when energy prices climb.

Strait of Hormuz Standoff Keeps Oil Elevated

Analysts at BNY observe that “hopes for a rapid reopening of the Strait of Hormuz faded.” They point out that US President Donald Trump has “said he will not seek to revive the expired U.S.–Iran truce, leaving the conflict and control of the vital shipping route unresolved,” as Washington is “demanding unrestricted passage through the strait, while Iran says traffic should be managed jointly with Oman.”

BNY further notes that “shipping activity remains heavily disrupted and fresh attacks near the strait have reinforced supply concerns.” While Trump has argued that “U.S. leverage over Iran remains substantial” and “claimed back channels are open, though Tehran disputed this,” the bank emphasizes that “the unresolved standoff keeps oil vulnerable to renewed escalation and prolonged disruption.”

Within this context, BNY concludes that “persistent Middle East tensions are keeping crude elevated, adding another supply-driven inflation risk to already stretched long-end markets.”

On Tuesday, US President Trump also confirmed in a post on Truth Social that Washington is not currently engaged in any discussions, nor are any scheduled, with Iran. He stated that the Hormuz is under US control and operating fully.

RBI Brings Forward End of FCNR(B) Swap Facility

In an unexpected policy step, the Reserve Bank of India (RBI) announced that it will shut its concessional foreign exchange swap window for Foreign Currency Non-Resident (Bank) deposits on 31 August, “a month ahead of the original deadline.” The RBI cited stronger-than-anticipated demand, with Indian banks having mobilized “USD52.3 billion of FCNR(B) deposits as of 13 August.”

Commerzbank analysts suggest that the decision indicates “diminishing benefits relative to the rising liquidity and balance-sheet costs of the scheme.” The large inflows have “generated substantial rupee liquidity and supported demand for shorter-dated government bonds,” although the bank warns that “the scheme is not costless.”

Looking ahead, Commerzbank expects the RBI to “rely primarily on spot and forward FX intervention if depreciation pressures return,” adding that any move toward raising interest rates would “likely require a more persistent combination of INR weakness and inflation pressure.” For now, the bank underscores that “oil prices remain the key external driver for INR, given India’s dependence on crude imports.”

The RBI is viewed as having stepped into both the spot and Non-Deliverable Forwards (NDFs) markets on multiple occasions in recent months to counter Rupee weakness. According to Reuters, the central bank was also thought to have intervened in the foreign exchange market this morning to limit pressure on the currency stemming from high oil prices and uncertainty surrounding the US-Iran conflict.