MUMBAI: A slight firming of the Indian rupee on Tuesday ended a two-month low streak, driven by hopes of U.S.-Iran diplomacy cooling oil prices and a surge in capital inflows from the Reserve Bank of India's latest measures. The currency rose 0.2% to 96.2350 against the U.S. dollar, breaking a recent decline that had rattled markets. Main Developments Oil prices initially dropped over 1% after reports of mediation efforts between the U.S. and Iran, though they later turned higher amid fresh attacks and threats of a naval blockade of Saudi Arabia by Yemen's Houthis. The decline in oil, even if temporary, eased pressure on India's import-heavy economy, which relies heavily on crude purchases. Read also: Why India's Market Slip Signals a Banking Sector Reality Check Better-than-expected inflows from the RBI's deposit mobilization scheme also boosted sentiment. The central bank reported that its measures, launched in early June, had attracted $20.72 billion between June 8 and July 17—its first update since the scheme began. Background The rupee had been under pressure for weeks, hitting a two-month low as oil prices surged amid escalating Middle East tensions. India, a major oil importer, typically sees its currency weaken when crude costs rise, as it widens the trade deficit and drains foreign exchange reserves. The RBI's scheme to attract overseas deposits from non-resident Indians is a key part of its strategy to bolster the country's FX kitty. Analysts at Nomura estimate the scheme could generate $55 billion in total inflows, with acceleration expected in August and September. Why It Matters The rupee's recovery offers a respite for Indian importers and the broader economy, which has been grappling with inflationary pressures from higher energy costs. The scale of future inflows and the RBI's intervention strategy will determine whether this gain is sustainable. Market uncertainty over the central bank's intentions remains high, as a divergence of views within the RBI over the extent of intervention needed to manage the currency has been reported by Reuters, citing three sources familiar with internal discussions. The RBI did not respond to an email seeking comment. What's Next Traders are closely watching the RBI's use of its reserves to defend the rupee, especially as Asian currencies remained mostly rangebound and global stocks pushed higher on tech earnings from Alphabet and Intel. The outcome of U.S.-Iran diplomacy and the pace of NRIs' deposit inflows will be critical in shaping the rupee's near-term trajectory.