MUMBAI, May 25 (Reuters) – The Indian rupee is set to build on its two-session rally on Monday as hopes of a deal to end the Iran war boosted risk appetite, while the central bank governor’s remarks on the currency are expected to aid sentiment as well.
Reserve Bank of India Governor Sanjay Malhotra told the Mint newspaper that the central bank will do “whatever is required” to ensure orderly movements in the foreign exchange market and that following its recent fall, the rupee appears undervalued.
Malhotra’s remarks follow two consecutive days of firm central bank intervention, per traders, in the foreign exchange market, which helped the rupee recover from its record low of near 97 per dollar hit on Wednesday last week.
On Monday, the rupee is expected to open around 95.50 per dollar, up from its close around 95.69 on Friday. The currency is down 6% over 2026 is so far.
Traders expect the currency to hold a slightly positive bias through the session as Brent crude oil prices retreated below $100 per barrel for the first time in over two weeks on optimism that the U.S. and Iran are moving closer to a peace deal.
Though markets found reason for optimism in developments over the weekend, the Trump administration on Sunday downplayed hopes of reaching a deal soon, a day after the U.S. President said Washington and Iran had “largely negotiated” a memorandum of understanding.
“We’ve been at this stage before, only for talks to break down. Therefore, the market will likely be more cautious about overreacting to these headlines,” analysts at ING said in a note.
Stocks in Asia rose over 1% and regional currencies were mostly stronger. The dollar index was hovering just shy of 99.
Meanwhile, India’s state-owned fuel retailers increased diesel and petrol prices on Monday, the fourth hike in May to recoup losses from higher costs due to the Iran war.
KEY INDICATORS:
** One-month non-deliverable rupee forward at 95.75
* Dollar index down at 98.99
** Brent crude futures down 4.6% at $98.8 per barrel
** Ten-year U.S. note yield at 4.56%
** As per NSDL data, foreign investors sold a net $185.9mln worth of Indian shares on May 21
** NSDL data shows foreign investors sold a net $35mln worth of Indian bonds on May 21