The Indian rupee rose to a nearly one-month high on Monday, as hopes of a deal to end the Iran war sent oil prices lower, with a pickup in foreign inflows boosting gains.
The currency strengthened nearly 0.3% to 95.13 per dollar, its highest since July 8.
The focus this week is on the Reserve Bank of India's policy decision, due on Wednesday. The central bank is expected to keep rates unchanged as modest inflation and strong inflows from its measures grant it breathing room.
"We anticipate a cautious policy statement, that underscores the need for continued vigilance on the inflation outlook," analysts at DBS said in a note.
"The committee is likely to push back against market expectations of a more aggressive tightening path reflected in implied rates," the note said.
Indian swaps are currently pricing in about 65 basis points of rate hikes over the next 12 months.
Oil prices tumbled after U.S. President Donald Trump held off on a fresh attack on Iran, seeking to reach a quick deal that would halt Tehran's nuclear ambitions and reopen the Strait of Hormuz.
Brent crude oil futures were down 5% at $83.5 per barrel, lifting shares in Mumbai 0.7% higher. Foreign investors turned buyers of Indian stocks in July, marking the first net monthly purchase since February.
Indian government bonds slipped after Bloomberg Index Services deferred their inclusion in a global index, disappointing investors. The yield on the 10-year note rose 2 basis points to 6.855%, the highest in more than a week.
Separately, measures announced by Indian authorities last month have drawn a total of $41 billion driven largely by non-resident deposits, data showed on Saturday.
