The Indian currency closed 22 paise weaker to 95.96 a dollar Thursday on heavy dollar demand from importers and concerns over Brent crude rising to $104 a barrel again.

Traders said that the Reserve Bank of India was seen in the market selling dollars through government-owned banks to prevent further weakening of the rupee beyond the 96 level.

Opening the day 9 paise weaker at 95.83 as against the previous close of 95.74, the local currency continued to be under pressure amid a surge in global bond yields. The fresh tension between US and Iran fuelled anticipation of rising inflation and further Fed rate hike in October.

"A rebound in crude oil prices, elevated bond yields and rising expectations of higher interest rates added to the currency’s headwinds," said Nandish Shah, an analyst with HDFC Securities.

The 5-year US bond yield hit its highest level since 2007, while Japan's 10-year bond ‌yield ⁠rose to levels last seen in August 1996. The local benchmark 10-year yield touched 7.11%, a four-month high.

"The spot can breach the 96 level and touch 96.20-25 Friday or early next week as dollar demand from importers is likely to continue ahead of the bank strike," forex market consultant KN Dey said. "The rupee may regain to 95.30/35 later," he said.

RBI deputy governor Poonam Gupta on Wednesday said that rupee's 13% depreciation between March 31, 2025 and September 16, 2026, was a temporary "overcorrection" and that there is a fair case for the currency to stabilise and eventually appreciate.