Iran ceasefire bolsters rupee as India's RBI prepares to hold rates

The Indian rupee was poised to strengthen on Wednesday after a two-week ceasefire agreed between Iran and the US triggered a sharp fall in oil prices and lifted risk sentiment across Asian markets.

The truce prompted the reopening of the Strait of Hormuz and offered oil-importing India a significant measure of relief after weeks of surging energy costs that had pushed the rupee to multi-month lows.

The currency was expected to open at 92.40 to 92.50 per dollar, roughly 40 to 50 basis points firmer than its previous close of 93.0075, with traders also watching for the Reserve Bank of India's policy decision due at 10am IST.

Ceasefire lifts markets and eases pressure on the rupee

Brent crude futures for June delivery plunged nearly 14% to $94.10 a barrel, reversing a run of gains that had weighed heavily on India's import bill and current account.

US equities rallied more than 2%, South Korean shares surged 6%, and Japan's benchmark index advanced 5%.

US Treasury yields and the dollar index both fell as investors moved back into risk assets.

"This is a positive de-escalation signal for markets, especially with Hormuz reopening," Charu Chanana, chief investment strategist at Saxo in Singapore told Reuters.

RBI holds rates as oil relief arrives just in time

India's central bank was widely expected to keep interest rates on hold at Wednesday's policy meeting, with a Reuters poll of analysts finding broad consensus around an unchanged decision.

The ceasefire and lower oil prices arrived at a timely moment for policymakers, reducing the inflationary pressure that elevated energy costs had been exerting on the economy and offering some breathing room for the rupee.

The RBI moved earlier this week to stabilise the currency by restricting banks and companies from securing short-term dollar loans — a measure that contributed to the rupee recovering around 7% from its 13-month low of approximately 95 to the dollar.

With the Hormuz corridor now reopened and oil prices retreating, the central bank's task of balancing inflation concerns against the need for growth-supportive conditions has become somewhat less fraught, at least for the duration of the truce.

The two-week ceasefire window is the critical variable.

Analysts will be watching whether diplomatic progress is sustained during that period and whether the reopening of the Strait of Hormuz translates into a normalisation of tanker traffic and energy flows in practice.

Any breakdown in talks or renewed disruption to shipping would quickly reverse the rupee's gains and reignite the inflationary pressures the RBI has been managing.

The central bank's rate decision and accompanying commentary will also be parsed closely for any signal on how policymakers are factoring the ceasefire into their medium-term outlook.