INDIA RUPEE-Renewed policy support lifts rupee from record-low brink to best week since March

By Jaspreet Kalra

MUMBAI, Oct 16 (Reuters) - The Indian rupee extended its rally to a fifth session on Friday and was headed for its steepest weekly gain in seven months on the central bank's measures to support the beleaguered Asian currency.

Regulatory curbs to rein in dollar demand, alongside market and verbal intervention, came to the rupee's rescue this week, lifting it about 2% to 94.88 per dollar by 11 a.m. IST and putting it on track for its best performance since late March, when the regulator cracked down on bloated arbitrage trades.

Last week, the rupee had threatened to fall past its record low of 96.96 as elevated oil prices, persistent foreign portfolio outflows and a surge in demand for hedging against further weakness battered markets.

From Saturday, policymakers moved in by redirecting oil dollar demand away from the market, raising the cost of buying protection against a weaker rupee and nudging mutual funds to suspend bulk subscriptions to gold exchange-traded funds.

Reserve Bank of India chief Sanjay Malhotra said in a media interview that the central bank was prepared to take further measures to ensure orderly conditions in the FX market. Finance Minister Nirmala Sitharaman backed efforts to curb volatility.

The RBI will further tighten monetary conditions to counter capital outflows and raise the cost of betting against the rupee, but will stop short of the aggressive measures used in a previous currency crisis, two sources and analysts told Reuters.

The RBI earlier this month raised interest rates for the first time in nearly four years.

https://www.reuters.com/graphics/INDIA-MARKETS/RUPEE/gdvzgjrmypw/chart.png

"Unlike in 2013, when policy tightening was a part of the initial response, the 2026 strategy has prioritised targeted FX and regulatory measures," DBS said in a note.

"The sequencing suggests a deliberate effort to distinguish actions aimed at preserving currency stability from those intended to achieve domestic monetary objectives, with rates remaining a potential, though not immediate, tool."

On Friday, onshore spot market activity was relatively subdued while cutting of bets on weaker rupee in the non-deliverable forwards market put it at an implied premium, buoying sentiment locally, traders said.