The Reserve Bank of India intervenes to curb the rupee's decline, but risks remain

智通财经2026/10/08 10:36

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(1) The Indian rupee was defensive on Thursday, pressured by a sharp rise in oil prices and overall weakness in Asian currencies, while possible central bank intervention prevented the rupee from testing the record low set five months ago. (2) The rupee closed largely flat against the U.S. dollar near 96.78, just shy of the historic low of 96.96 reached in May. (3) Persistently high oil prices, soaring developed market bond yields, and sluggish capital flows have weighed on the rupee this year, with its year-to-date decline against the dollar exceeding 7%, ranking among the worst performers in the region. (4) Ongoing intervention by the Reserve Bank of India has provided some market relief, but traders still see no reason to be bullish on the rupee. (5) According to a hedge fund FX trader, the question now is whether the central bank will allow the 97 threshold to be breached, and whether the market will attempt to push the rupee towards the 100 level. (6) Investors believe India’s first rate hike in nearly four years is unlikely to slow or reverse the record capital outflows, with the central bank still grappling with a vicious cycle of currency depreciation and rising inflation amid an unfavorable global environment. (7) Adverse global factors intensified again, with Brent crude surging over 4% to above $104 per barrel as concerns over Middle East supplies persisted and incidents of shipping attacks in the Gulf and Strait of Hormuz increased. (8) Asian currencies fell across the board, and the U.S. dollar index hovered near a more than one-year high after Federal Reserve meeting minutes showed policymakers viewed inflation as the biggest risk to the outlook. (9) According to one agency report, currency markets have fully priced in the Fed’s hawkish stance: after expecting a 25bps rate hike to 4.25% in December, the market still anticipates a further tightening of 50bps next year, which the agency considers overly aggressive, but doubts whether the market will be willing to challenge hawkish pricing this year. (10) Further attention will be paid to the extent of intervention by the Reserve Bank of India, oil price trends, and the Federal Reserve's policy path regarding their impact on the rupee and regional capital flows.

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On Thursday, the Indian Rupee was on the defensive, pressured by surging oil prices and an overall weakening of Asian currencies, while possible central bank intervention kept the Rupee from testing the record low set five months ago.
The Rupee closed almost unchanged against the US dollar near 96.78, just a step away from the all-time low of 96.96 set in May.
Persistently high oil prices, soaring developed market bond yields, and weak capital flows have weighed on the Rupee this year, leading to a decline of over 7% against the dollar, making it one of the worst performers in the region.
The Reserve Bank of India's continued intervention has provided some relief to the market, but traders have yet to see a reason to be bullish on the Rupee.
According to a hedge fund forex trader, the current question is whether the central bank will allow the 97 mark to be breached, and whether the market will attempt to push the Rupee closer to 100.
Investors stated that India's first rate hike in nearly four years is unlikely to slow down or reverse the record capital outflows, as the central bank continues to grapple with the vicious cycle of currency weakness and rising inflation in an adverse global environment.
Adverse global factors have intensified again, with Brent crude surging more than 4% to above $104 per barrel due to continued concerns over Middle East supplies, and a rise in attacks on shipping in the Gulf and the Strait of Hormuz.
Asian currencies fell across the board, and the US Dollar Index hovered near a more than one-year high after Federal Reserve meeting minutes revealed policymakers viewed inflation as the biggest risk to the outlook.
An institution stated in a report that the currency market has fully priced in the Federal Reserve’s hawkish stance: after expecting a 25 basis point hike in December to 4.25%, markets are still anticipating a further 50 basis points of tightening next year. The institution considers this expectation to be overly aggressive, but doubts the market will be willing to push back against hawkish pricing this year.
Going forward, attention will focus on the extent of intervention by the Reserve Bank of India, oil price trends, and the US Federal Reserve's policy path, and their impact on the Rupee and regional capital flows.

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The President of the Federal Reserve Bank of St. Louis, Musalem, stated that the Federal Reserve needs to raise interest rates again to bring inflation back to the 2% target level. He said that in order to achieve the inflation target within a "timely" period, monetary policy requires further tightening. Musalem indicated that if "timely" means about 18 months, interest rates may need to be further increased at an appropriate time in the next 6 to 9 months. He noted that inflation remains the main challenge facing the US economy, but with strong economic growth and a stable job market, the Federal Reserve may be able to reduce inflation without significantly hurting employment. When asked whether an interest rate hike should be considered at the policy meeting on October 27-28, Musalem expressed an open attitude, stating he has not yet made a prediction about the meeting's outcome, but the inflation situation requires policymakers to continue considering further tightening measures. Musalem said that despite the noticeable rise in US Treasury yields, financial conditions remain loose and continue to support economic growth. He stated that the rise in yields does not mean that investors are losing confidence in the Federal Reserve, but rather reflects market expectations that real interest rates will rise and that capital competition is intensifying in a strong economic environment.

智通财经•2026/10/08 20:41

Updated version 1 - SpaceX will acquire spectrum to enable Starlink mobile services

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