The Indian rupee strengthened on Tuesday as a fall in crude oil prices bolstered sentiment on the currency, with analysts also paring back their expectations for the pace of rupee depreciation after policymakers unveiled measures to draw dollar inflows.
Goldman Sachs sees the central bank and government measures limiting depreciation pressure on the rupee and has pushed forward its rupee forecast of 97 per dollar from 3 months to 12 months. MUFG reckons that the local currency could trade around 94 by end of the September quarter, compared to 95.80 earlier.
On the day, the rupee traded at 95.63 per dollar, up 0.1% from its last close at 95.7075.
The currency has whipsawed over the last two trading sessions. It was boosted by the dollar inflow measures but is vulnerable to a spike in oil prices, which remain volatile amid uncertainty over how durable ceasefires in the Middle East will prove to be.
Iran and Israel said on Monday they had halted attacks on each other after an appeal from U.S. President Donald Trump.
Brent crude oil prices declined 1% to $93.26 per barrel, offering respite to Asian currencies and stocks.
Post markets hours on Monday, the Reserve Bank of India unveiled details of its measures to boost the rupee. The central bank will allow leverage for NRI deposits and also offer a discounted swap for banks' overseas borrowings.
The currency-supporting steps were taken by the central bank after a period of sustained pressure on the rupee that saw it fall nearly 8% year-to-date to a record low of 96.96 on May 20.
"We would be closely watching the extent of inflows under these schemes but would expect the USDINR to move towards 93 in the short run as the markets worry less about any impending BoP risks for India and the RBI builds up its FX reserve buffer," analysts at Citi said in a note.
The firm had earlier forecast the rupee at 97.90 in one month, per a June 3 Reuters poll, before the measures were announced.
