The Indian rupee and dollar-rupee forward premiums experienced a decline on Tuesday, influenced by a mix of importer hedging, foreign portfolio outflows, and probable intervention by the central bank across various segments of the foreign exchange market.
The rupee closed at 95.2650 per dollar, marking a 0.3% decrease from the previous session. Market participants noted that the losses could have been more severe, had it not been for the Reserve Bank of India’s (RBI) consistent dollar-selling interventions, which have been implemented almost daily since the rupee reached a historic low of 96.96 per dollar in mid-May.
The RBI’s interventions have been coupled with dollar-rupee buy/sell swaps to carefully manage rupee liquidity and mitigate the effects on its foreign exchange reserves. As a result of these swaps, dollar-rupee forward premiums fell on Tuesday, with the one-year implied yield decreasing by 12 basis points to 3.03%. Forward premiums indicate the expense of hedging against the potential depreciation of the rupee.
Despite these efforts, traders anticipate ongoing pressure on the rupee in the near term, attributing this to weak capital flows and the uncertainty stemming from the Middle East conflict, which has kept oil prices volatile. Oil prices declined by over 1% on Tuesday, reversing sharp gains from the previous session after U.S. President Donald Trump stated that negotiations with Iran were ongoing, contradicting reports that Tehran had halted indirect discussions with Washington aimed at reducing hostilities.
The disruption of global energy supplies instigated by the conflict has complicated India’s macroeconomic landscape, placing the RBI in a challenging position regarding rising inflation and sluggish growth while attempting to stabilize the rupee’s ongoing depreciation.
Economists at J.P. Morgan, similar to many surveyed by Reuters, predict that the RBI will maintain the key policy rate at 5.25% during its meeting on Friday. “In light of the recent currency weakness, the RBI is likely to emphasize the ‘separability’ principle under its inflation-targeting framework: policy rates are utilized to manage growth-inflation dynamics, while foreign exchange volatility is addressed through foreign reserves and other regulatory measures,” J.P. Morgan noted.
Published on June 2, 2026.
