The Indian rupee fell on Tuesday as importer hedging and foreign portfolio outflows weighed on the currency, though central bank action helped contain losses. The rupee closed at 95.2650 against the dollar, down 0.3 percent from the prior session. Traders noted that declines would have been sharper without Reserve Bank of India dollar sales, which have taken place in most sessions since the currency reached a record low of 96.96 in mid-May. The central bank also used dollar-rupee swaps to manage liquidity and reserves. These swaps pushed the one-year forward premium down 12 basis points to 3.03 percent. Despite the support, analysts expect continued pressure on the rupee due to weak capital flows and uncertainty over Middle East tensions that keep oil prices volatile. Oil prices dropped more than 1 percent on Tuesday after reports of ongoing talks between the United States and Iran. The conflict has raised concerns about energy supplies, complicating India’s economic outlook and leaving the RBI balancing risks of higher inflation and slower growth. Economists at J.P. Morgan expect the central bank to hold its key policy rate at 5.25 percent on Friday, citing the separability principle that separates interest rate decisions from foreign exchange management.
