New Delhi

The Indian rupee rebounded nearly 1 per cent to around 95.80 against the US dollar on Monday from Friday's close of 96.71 after the Reserve Bank of India (RBI) operationalised a special dollar window to meet the daily foreign exchange requirements of state-run oil marketing companies.

Anindya Banerjee, Head of Commodity and Currency Research at Kotak Neo, described the RBI's latest measures as a positive development for the domestic currency, saying they could ease demand pressure in the foreign exchange market.

“The RBI’s latest package is a clear near-term positive for the rupee,” Banerjee said.

The RBI announced on Saturday that it would meet the entire daily dollar requirements of Indian Oil Corporation, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited through a special window. The facility became operational on Monday and will remain in place until further notice.

Banerjee said the arrangement was significant as it would remove the oil companies' entire daily dollar demand from the regular foreign exchange market. He added that the central bank's measures to tighten currency hedging rules could also help limit additional hedging demand.

Under the revised rules, the RBI has reduced the underlying-exposure documentation threshold for rupee derivatives from USD 100 million to USD 5 million and restricted the rebooking of cancelled contracts.

On the outlook for the rupee, Banerjee said the USD/INR pair's working range remained between 94 and 97. He assessed that the RBI could remain particularly vigilant if the pair moved towards 96.50, although this is not an officially declared exchange-rate ceiling.

“The recent retreat in crude is supportive, but sustained rupee appreciation beyond 94 would require a more durable decline in oil prices and an improvement in capital flows,” Banerjee said.

Despite the RBI's intervention, the domestic currency continues to face pressure from elevated crude oil prices, foreign capital outflows and a strong US dollar.

Ashish Rajodiya, Head of Commodities at PL Capital, said the central bank's decision to meet the oil companies' dollar requirements has removed a major source of demand from the regular foreign exchange market.

He highlighted continued pressure from foreign portfolio investor outflows, stating that investors had withdrawn around Rs 44,000 crore from equities so far this month, taking the year's outflows beyond Rs 3 lakh crore.

Brent crude continued to trade above USD 100 per barrel, while US Treasury yields above 5.2 per cent supported the dollar and added to pressure on the Indian currency.

Rajodiya also flagged the potential cost of the RBI's intervention, noting that dollar sales to oil companies could draw down the country's foreign exchange reserves, which had declined by nearly USD 13 billion in the week ended October 2.

Looking ahead, market participants will track domestic and US inflation data for further cues on the rupee's direction.

Rajodiya said India's September retail inflation reading, expected to show an increase to around 5.4 per cent, and US consumer price inflation data due on Wednesday would be important for the currency.

He said higher-than-expected inflation readings could push the rupee towards 97 against the dollar, while softer data and lower crude prices could provide room for the currency to strengthen towards 94.90.

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The rupee's near-term trajectory will depend on the effectiveness of the RBI's measures in easing dollar demand, movements in crude oil prices and the direction of foreign capital flows.