Indian Rupee Stabilizes Amid US Rate Hikes and Tariff Threats

The Reserve Bank of India intervened in the foreign exchange market on Thursday to stabilize the Indian rupee, which settled at 95.94 against the U.S. dollar. The currency faced significant volatility, breaching the 96 level to hit an intraday low of 96.10 before recovering. This downward pressure followed a U.S. Federal Reserve interest rate hike—the first in three years—intended to combat rising inflation, which pushed short-dated U.S. yields to a two-year high.

Additional pressure stemmed from global trade uncertainties after the U.S. House of Representatives passed a law authorizing President Donald Trump to impose tariffs of up to 100 percent on countries importing Russian oil, including India. Foreign fund outflows further strained the currency, though inflows from a global equity index rebalancing provided some offset.

To manage the banking system and drain excess rupee liquidity, the Reserve Bank of India likely conducted dollar-rupee sell/buy swaps and an open market debt sale. Investor sentiment was partially stabilized by a slight decline in the dollar index and a drop in Brent crude prices, which fell approximately 1 percent to $104.8 following reports of additional Saudi crude cargoes through Oman.