The Indian rupee strengthened to 95.9 per dollar from the record low of 97.15 on May 19th, after the Reserve Bank of India (RBI) continued to intervene in the foreign-exchange market to stem this year’s slide in the currency. The central bank sold dollars to state-run banks through the third week of the month, offsetting foreign-exchange outflows that initially came from energy importers following the surge in oil prices triggered by the war in the Middle East. These outflows were later amplified by selling from Indian equity and bond investors seeking to reduce their rupee exposure.
In addition to dollar sales, RBI officials reportedly considered raising interest rates as soon as at the next policy meeting to curb further depreciation and mitigate risks to foreign-currency reserves. However, some policymakers argued against a rate hike, favoring instead additional currency-market intervention and measures aimed at stimulating dollar inflows.
