The rupee appreciated 40 paise to 95.20 against the US dollar in early trade on Monday amid optimism over a possible peace agreement between the US and Iran and expectations of progress in the India-US trade deal. Forex traders said easing geopolitical tensions and falling crude oil prices supported the Indian currency, while a weaker dollar index also boosted sentiment.
At the interbank foreign exchange market, the rupee opened at 95.36 and strengthened further from Friday's close of 95.60 against the greenback. Brent crude prices fell over 5 per cent to around USD 97.92 per barrel, while the dollar index slipped 0.20 per cent to 99.04.
US President Donald Trump said Washington and Tehran had "largely negotiated" a peace pact to end the nearly three-month conflict, although differences remain over key issues, including blockades on the Strait of Hormuz. Meanwhile, US Secretary of State Marco Rubio said India and the US were close to finalising an interim trade agreement following progress in ongoing negotiations.
Market experts said the expected India-US trade deal would benefit both economies and further support the rupee. However, traders cautioned that month-end dollar demand and RBI intervention could limit sharp gains in the domestic currency.
Meanwhile, economist and former NITI Aayog Vice-Chairman Arvind Panagariya said there was no need to panic even if the rupee touched the Rs 100-per-dollar mark, arguing that exchange rates should be allowed to adjust naturally during periods of global uncertainty.
"Don't panic at Rs 100 per dollar," Panagariya said, adding that excessive intervention by the Reserve Bank of India to defend a psychological level could drain foreign exchange reserves.
The domestic currency is currently undervalued due to the recent decline after the Gulf crisis, he said in an interview with Mint newspaper.
"With the recent depreciation in the rupee, it would be reasonable to think that the rupee is not overvalued. If anything, one could argue that the rupee has become undervalued, both in nominal as well as in REER (real effective exchange rate) terms. Once the situation in West Asia normalises, one could very well see the rupee appreciate, as it has during past similar episodes of external-shock-driven volatility," the governor said when asked about the declining rupee since the start of the war in West Asia.
Against the dollar, the rupee has declined over 6 percent this year and about 5 percent since the start of the Iran war in late February. The rupee is the worst-performing Asian currency this year.
However, Malhotra assured that the central bank "will do whatever is required to ensure orderly price discovery in the forex market".
"We have enough tools in our kit. We have sufficient forex reserves — $700 billion or so — and other measures that we can deploy to quell any undue speculative movement," he said.
He pointed to the measures taken by the central bank to regulate "undue speculation" in the forex market.
The governor acknowledged that there could be some pressure on the current account deficit. Still, controlled gold imports and resilient services exports are expected to ease the pressure.
He also stated that higher global crude oil prices should gradually reflect in domestic fuel prices rather than being artificially suppressed, while cautioning against aggressive measures such as high-interest NRI deposit schemes to attract foreign currency inflows.
Remittances, a major source of dollar inflow, are also expected to face minimal impact, Malhotra said.
The governor expressed optimism that this crisis would help India strengthen its energy security.
"We have never allowed a crisis to go waste. We need to — and I am confident that we shall — use the West Asia crisis too as an opportunity and expedite measures for energy security and the long-term improvement of our balance of payments," he said.
Panagariya further supported Prime Minister Narendra Modi's appeal to reduce discretionary foreign exchange spending but warned against imposing mandatory restrictions, saying market-driven currency adjustments remain more sustainable during volatile global conditions.
