Rupee hits two-month low despite RBI intervention as crude oil surge weighs

Mumbai: The Indian rupee retreated to a two-month low of 96.52 to a dollar Monday despite what dealers described as significant central bank interventions, as a steep rise in crude oil prices over the past 10 days stoked inflation concerns in an economy heavily reliant on Gulf-routed energy supplies.

The rupee, which had touched a lifetime low of 96.96 to a dollar late May during the peak of the West Asia crisis, ended Monday at 96.45, with the Reserve Bank of India (RBI) selling dollars at lower levels for the rupee to prevent its rout, market participants said.

“The market’s focus will remain firmly on global crude oil prices, the strength of the US dollar, the pace of importer hedging demand and the intensity of central bank interventions,” said Kunal Sodhani, head of treasury, Shinhan Bank India, underscoring the challenges for the local unit amid a near double-digit climb in spot oil prices since July 10.

Spot Brent crude prices have climbed nearly 9% to $82.56 a barrel since July 10 over mounting concerns of a breakdown in the peace talks involving Tehran and Washington.

“Broadly, a 95.80-96.90 range is likely for the week,” Sodhani said, implying the downward bias for the rupee.

In FY27 so far, the Indian currency has depreciated 1.7%, while last year, it weakened nearly 11% against the US currency.

Crucial Support
Dollar sales were ‘solid’ when the rupee weakened past the 96.50 levels, a trader said, as the central bank likely intervened to protect the rupee as it inched close to record low levels. The rupee had closed last week at 96.28 to a dollar.

The rupee touched its record low of 96.96 on May 20. On a closing basis, the record low stands at 96.83. A fast pace of deprecation was seen in April and May, where multiple measures by the Reserve Bank of India (RBI) over that period helped the currency appreciate to around 94.30 levels in June.

The currency traded in the range of 96.35 and 96.54 on Monday and crude oil futures traded at $91.42 per barrel early on the day, before easing modestly to around $87 per barrel, Reuters data showed. Dollar demand was seen from importers and oil companies amid risk aversion, dealers said.

Additionally, banks have turned cautious about their forecast on potential fund mobilisation via the Foreign currency non-resident bank, or FCNR (B), deposit scheme. When the program was announced, institutions had expected inflows as high as $70 billion until September 30, when the special window is shut.

“FCNR(B) deposits don’t seem to be coming in a large way, causing problems for the rupee. However, I still expect the RBI to intervene aggressively, especially around record low levels,” said Anindya Banerjee, head of currency research, Kotak Securities. “If oil prices don’t fall, the central bank will be tested,” Banerjee added.

Brent crude futures peaked around $126 in late May this year, when the US war on Iran was at its peak. Later in June, oil prices eased to around $72 per barrel.