The Indian rupee snapped its three-session winning streak on Tuesday, 26 May, opening 15 paise lower at 95.38 against the US dollar as renewed geopolitical tensions in the Middle East dampened hopes of an imminent peace agreement between the United States and Iran. According to reports, experts also pointed to likely month-end dollar demand as a factor weighing on the domestic currency.
Sentiment turned cautious after US forces carried out what were described as “defensive actions” in southern Iran on Monday, raising concerns about a potential escalation in the region. Reflecting the increased risk premium, Brent crude futures climbed more than 2% to $98.3 per barrel, rebounding from their lowest levels in over two weeks.
The rupee had recovered from its record low of 96.96 per dollar touched last week, aided by optimism over a possible easing of hostilities in the Middle East and dollar-selling interventions by the Reserve Bank of India, which helped stabilise the currency market.
The Reserve Bank of India Governor Sanjay Malhotra stated in a Monday interview that the central bank will take all necessary measures to maintain stability in the foreign exchange market.
According to a previous Reuters report, Indian banks have requested subsidised forex hedging costs from the Reserve Bank of India to enhance their overseas borrowing capabilities, as the central bank aims to bolster dollar inflows into the economy.
On Tuesday, India increased the prices of compressed natural gas, following a day after state-owned fuel retailers raised prices for the fourth time in May.
In light of the recent rise in petrol and diesel prices, economists at Goldman Sachs have raised their consumer inflation forecast for the fiscal year 2026-27by 10 basis points to 5.2%. They anticipate that the Reserve Bank of India will implement two 25-basis-point rate hikes in October and December.
(more to come)