Why India's central bank is fighting to keep the rupee above 93

The Indian rupee was expected to trade in a narrow range around 93 to the dollar on Tuesday as the Reserve Bank of India continued to support the currency following a period of sharp volatility that had driven it to record lows.

The central bank's intervention has provided a floor, but geopolitical uncertainty and elevated oil prices are keeping any meaningful recovery in check.

Volatility eases after RBI steps in

The rupee ended Monday's session at 93.06 to the dollar after swinging wildly over the preceding three days, during which it touched a lifetime low of around 95 per dollar.

Monday's range of around 30 paise was strikingly narrow by recent standards, suggesting that the RBI's support had succeeded in anchoring sentiment, at least temporarily.

Banks attributed recent moves to the unwinding of arbitrage and speculative positions near the 93 level.

A trader at a private-sector bank said the market would need to sustain gains independently for any recovery to hold, even as the RBI's actions had helped stabilise the currency after its slide towards 95.

Also Read: Trump's Tuesday ultimatum sends oil prices past $114 a barrel

Position unwinding offers brief support

Dollar exposure held by banks in India has been reduced over the past week, which traders said could help keep the rupee relatively contained, with the currency likely to find support around current levels.

The rupee was expected to trade in a narrow range near 93, according to Reuters.

Geopolitics and oil keep upside capped

Broader risk sentiment remained fragile after US President Donald Trump warned that Iran would face severe consequences if it failed to reopen the Strait of Hormuz by 8pm EDT on Tuesday.

Trump said Iran would face “hell” if it did not comply with his deadline, language that has kept markets on edge across currencies and commodities.

The prospect of a prolonged Iran conflict continues to weigh on oil-sensitive currencies including the rupee, as higher energy prices widen India's import bill and put pressure on the current account.

So long as the Hormuz standoff persists, the RBI's task of stabilising the rupee will be complicated by external factors beyond its direct control.

The rupee's near-term path will be shaped by two variables: how long the RBI can sustain stability around current levels through the impact of position unwinding, and whether any de-escalation in the Iran conflict eases oil price pressure and reduces the risk premium embedded in the currency.

A ceasefire or credible diplomatic signal could provide meaningful relief; a further escalation would test the central bank's resolve and its willingness to intervene.