Rupee may test 94.50 against dollar as oil, US yields keep pressure on currency: SBI Research

The Indian rupee may test the 94.50-per-dollar level in the near term as elevated crude oil prices, firm US bond yields and global uncertainties weigh on the currency. However, a sustained recovery will require structural measures by the government to revive foreign capital inflows, as the Reserve Bank of India’s (RBI) ability to intervene is limited, according to SBI Research.

The RBI has stepped up efforts to curb the rupee’s depreciation through measures aimed at reducing dollar demand in the spot market, tightening banking liquidity and curbing speculative activity in currency derivatives. However, the report said the effectiveness of these interventions would depend on global market conditions and India’s ability to attract foreign investment.

Using a stressed scenario, SBI Research estimated that India’s foreign exchange reserves are around $100 billion higher than stressed adequacy norms, providing a substantial buffer against external shocks.

RBI tightens liquidity, curbs currency speculation

The RBI has opened a direct dollar-supply window for three state-owned oil marketing companies—Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation—to meet their daily foreign exchange requirements. The arrangement is expected to divert $10-12 billion in monthly dollar demand away from the open spot market.

The move differs from the central bank’s interventions during the 2008 and 2013 currency crises, when repayable swap arrangements were used to supply dollars to oil companies.

The RBI has also raised the minimum daily cash reserve ratio (CRR) maintenance requirement for banks to 99% from 90%, effective from the reporting fortnight beginning October 16, 2026. The average CRR requirement over the 15-day fortnight remains 100%.

Separately, the central bank has announced an open market operation (OMO) sale of government securities worth ₹25,000 crore on October 13, following OMO sales of ₹1 lakh crore in September. System liquidity surplus stood at ₹3.7 lakh crore on October 9.

SBI Research said the measures would tighten liquidity without raising the CRR itself, reduce banks’ flexibility in daily fund management and push overnight call rates closer to the 5.50% repo rate.

The RBI has also introduced a Foreign Exchange Risk Reserve (FERR) requirement for dealers undertaking derivative transactions with notional values exceeding $2 million. Dealers must maintain cash reserves equivalent to 20% of the rupee value of each qualifying transaction.

Based on average monthly merchant forward sales of $46.94 billion, the report estimated that the requirement could translate into around ₹80,000 crore in reserves against fresh contracts, assuming 10% of the notional amount falls below the threshold. Together, these measures could withdraw more than ₹1 lakh crore from the banking system over time.

The RBI has also reduced permitted currency derivative positions from $100 million to $5 million and restricted corporates from rebooking cancelled forward contracts involving the rupee. These steps could curb opportunities to exploit pricing differences between onshore and offshore non-deliverable forward markets, although their effectiveness will depend on global risk sentiment.

Crude prices, US yields may sustain pressure

SBI Research’s recurrent neural network forecasts suggest crude oil prices are unlikely to decline sharply in the near term. Over a 10-trading-day horizon, dated Brent crude is projected to rise from around $103.4 to $110 per barrel, while the Indian crude basket could increase from approximately $127 to $130 per barrel.

The report expects US bond yields, particularly at the longer end, to face upward pressure over the next three to six months. Inflation, rising public debt and geopolitical and trade uncertainties could keep yields elevated, making dollar-denominated assets attractive to investors.

Recent market movements indicate a bear-steepening trend, with longer-term yields rising faster. The 10-year US real yield has increased by 23 basis points to 2.91%, reinforcing caution over long-duration bonds.

Higher crude prices could widen India’s import bill, while firm US yields could intensify pressure on emerging-market currencies.

Tax incentives, export timelines among proposed reforms

SBI Research highlighted sustained foreign portfolio investor (FPI) outflows as a key concern. Equity outflows between 2021 and September 2026 amounted to ₹3.51 lakh crore, including more than ₹2.61 lakh crore in 2026 alone, according to the report. It called for measures to make Indian equities more attractive to foreign investors, including potential tax incentives for investments held for at least three years.

The report also recommended making six months the standard timeline for repatriating export proceeds, with extensions granted only in exceptional cases. This could discourage exporters from delaying dollar conversions amid expectations of further rupee depreciation.

Greater clarity on withholding tax applicable to external commercial borrowings, particularly the interaction between domestic tax provisions and double taxation avoidance agreements, could also strengthen investor confidence.

While the RBI’s measures may contain near-term volatility, SBI Research said a durable recovery in the rupee would depend on structural reforms, stronger capital inflows, and a more supportive global environment.